Will an SBA lender take a lien on my house?
Short answer
On a Standard 7(a) loan with a collateral shortfall, yes, unless your equity is less than 25% of fair market value. On 7(a) Small and SBA Express loans it is generally the lender's choice. Source: SOP 50 10 8.1, App. 19, Paras. A.1 and B.1-B.3.
On a Standard 7(a) loan with a collateralProperty a lender can take and sell if a loan is not repaid. shortfall, yes, if the home has enough equity. SOP 50 10 8.1, App. 19, Para. B.1, says the lender must take available equity in personal real estate when the loan is not fully secured. The lender need not take a lien when equity is less than 25% of fair market value (App. 19, Para. A.1, Personal Real Estate).
The rule is not limited to your home. The test is ownership of 20% or more by you alone, or with a spouse or minor children. At that level, the lender must consider liens on personal real estate. That covers commercial and investment properties the applicant does not occupy, owned individually or jointly with that spouse or those children (Para. B.1).
By program:
- 7(a) Small. SBA does not require the lien. The lender may take it under its own policy (App. 19, Para. B.2).
- SBA Express. At or under $50,000, no collateral is required. Above that, the lender's own policy controls (Para. B.3).
- Buying a business. Available equity in solely owned personal real estate must be taken if there is a shortfall. That covers co-borrowers, owners of 20% or more, and guarantors other than Supplemental Guarantors (App. 15, Para. C.3.d).
- 504 loans. If business assets do not fully collateralize the loan, available personal assets must be pledged to secure the guaranty (Sec. C, Ch. 1, Para. E.2.a).
If business assets fully secure a Standard 7(a) loan, this shortfall rule does not apply.
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