Must SBA lenders take receivables and inventory as collateral?
Short answer
On a Standard 7(a) loan it is the lender's choice, and those assets count at no more than 10% of book value. On a loan to buy a business, the lender must take them. Source: SOP 50 10 8.1, App. 19, Para. B.1; App. 15, Para. C.3.
It is the lender's choice on a Standard 7(a) loan and a requirement on a loan to buy a business. The lender can take trading assets, meaning receivables and inventory, or leave them free for a line of creditA credit limit you can draw on, repay and draw on again. . That choice is in SOP 50 10 8.1, App. 19, Para. B.1. If the lender takes them, no more than 10% of current book value counts toward fully secured.
Other programs set their own rule:
- Loans to buy a business. The lender must take a security interest in the receivables and inventory of the operating entity. No more than 10% of current book value counts (App. 15, Para. C.3.d).
- 7(a) Small loans. SBA does not require trading assets, but a lender may take them (App. 19, Para. B.2).
- 7(a) Manufacturers' Access to Revolving Credit (MARC) loans. The lender must file a UCC-1 lien on all business assets and hold a first lien on trading assets (App. 19, Para. B.4).
- Working Capital CAPLines. The lender must obtain a first lien on working or trading assets (App. 19, Para. B.5).
Why this matters for a line of credit
Trading assets pledged to a term lender are harder to pledge again. If you expect to need a revolving line, raise it before closing.
SBA's rules allow for this. It is not piggyback financing when both loans fund working capitalMoney for day-to-day costs such as payroll, rent and inventory. Full definition and the non-SBA loan is secured only by working or trading assets (App. 19, Para. A.1). On a business purchase, a line can take first position on those assets only under the conditions in App. 15, Para. C.3.d.
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