# Collateral for small business loans: what lenders take and how they value it

**Short answer:** Collateral is property a lender can claim if you stop paying, and lenders count it at a discount. SBA counts improved real estate at no more than 85% of market value. Among firms with debt, 51% pledged business assets (Federal Reserve, 2026).

Canonical page: https://www.sbaexpress.loans/guides/collateral-for-small-business-loans/
Last checked: 2026-11-09

## On this page

- [Lenders take business assets first, and sometimes personal ones](#lenders-take-business-assets-first-and-sometimes-personal-ones)
- [Lenders count collateral at a discount to market value](#lenders-count-collateral-at-a-discount-to-market-value)
- [A shortfall can reach your home, with limits](#a-shortfall-can-reach-your-home-with-limits)
- [SBA rules change with the program and the loan size](#sba-rules-change-with-the-program-and-the-loan-size)
- [Pledging collateral has costs beyond the loan](#pledging-collateral-has-costs-beyond-the-loan)
- [More collateral is a bad idea when cash flow is the problem](#more-collateral-is-a-bad-idea-when-cash-flow-is-the-problem)

## Lenders take business assets first, and sometimes personal ones

Collateral is property a lender can sell to recover its money if you stop paying. Business collateral is usually real estate, equipment, vehicles, and trading assets such as receivables and inventory. Personal collateral can include equity in real estate you own. SBA's personal collateral rules center on that equity.

The Federal Reserve's 2025 survey shows how common each type is. Among firms with debt, 59% used a personal guarantee and 51% pledged business assets. Another 38% pledged the owner's personal assets, up from 31% in 2019. Ten percent pledged part of their future sales, and 10% pledged nothing. Firms could choose more than one. Source: 2026 Report on Employer Firms, p. 9.

## Lenders count collateral at a discount to market value

Lenders usually count an asset at less than its full market value, because selling it takes time and costs money. Each lender sets its own discounts, and they vary by lender. USDA's rural guarantee program works the same way. The OCC notes that lenders must discount collateral under a sound loan-to-discounted-value policy (June 2025, p. 7). SBA publishes its limits, and they show the usual pattern. On a Standard 7(a) loan, SOP 50 10 8.1, Appendix 19, Para. B.1 counts assets toward a "fully secured" loan at no more than these values:

- New equipment: 75% of price, minus prior liens.
- Used equipment: 50% of net book value, or 80% with an orderly liquidation appraisal, minus prior liens.
- Improved real estate: 85% of market value. Unimproved real estate: 50%.
- Furniture and fixtures: 10% of net book value or appraised value.
- Receivables and inventory, if the lender takes them: 10% of current book value.

SBA also does not require a lien on a vehicle that already has one or is worth $20,000 or less (App. 19, Para. A.1).

An example shows the effect. Suppose you ask for a $400,000 loan. You offer a building worth $300,000 and new equipment priced at $100,000. You also offer used equipment with a $60,000 book value and furniture with a $20,000 book value. The counted values are $255,000, $75,000, $30,000 and $2,000. The total is $362,000, so the collateral is $38,000 short. You offered $480,000 of property, and it still falls short of the loan.

## A shortfall can reach your home, with limits

On a Standard 7(a) loan with a shortfall, the lender must take available equity in personal real estate. The rule reaches owners of 20% or more of the business, alone or with a spouse or minor children. Two limits apply. The lender need not take a lien when equity is less than 25% of fair market value. When it does take one, the lien may be limited to the collateral shortfall or 150% of the equity in the property. Source: SOP 50 10 8.1, App. 19, Paras. A.1 and B.1.

Return to the $38,000 shortfall. Suppose your home is worth $500,000 and carries a $300,000 mortgage. Your equity is $200,000, or 40% of value. The lender may take a lien that covers the $38,000 shortfall. Now suppose the home is worth $400,000 and carries a $320,000 mortgage. Your equity is $80,000, or 20% of value. That is below the line, so the lender need not take a lien.

## SBA rules change with the program and the loan size

SBA's collateral rules depend on the program and the size.

- $50,000 or less: SBA requires no collateral on 7(a) Small, SBA Express, Export Express or CAPLines loans. A lender may still take collateral on a 7(a) Small loan under its own policy.
- SBA Express above that size: the lender may use its own collateral policies for similar non-SBA loans.
- 7(a) Small above that size: when half or more of the proceeds fund working capital, the lender must take liens on fixed assets. The lender takes them until the loan is fully secured.
- Standard 7(a): the loan must be fully secured, using the values above.

Two other rules matter. Under App. 19, Para. A.1, a loan request must not be declined solely because collateral is inadequate. SBA also says its guaranty is not a substitute for available collateral. Expect the lender to take the assets you can pledge.

## Pledging collateral has costs beyond the loan

A lien limits what you can do with the asset. A blanket lien can leave nothing free for a second lender. A lien on your home puts your home at risk if you default. Our [guide to UCC liens](https://www.sbaexpress.loans/guides/ucc-liens-explained/) explains how filings work. Our [guide to personal guarantees](https://www.sbaexpress.loans/guides/personal-guarantees-explained/) covers the promise lenders often ask for on top of collateral.

- Cross-collateral clauses can let one default reach every pledged asset.
- The lender may require insurance and appraisals. SBA lets the lender pass the cost of a required commercial real estate appraisal to you (App. 19, Para. A.1).
- Pledged assets usually cannot be sold or replaced without the lender's consent.
- Leaving receivables and inventory unpledged keeps them available for a separate line of credit. On a Standard 7(a) loan, SBA leaves that choice to the lender (App. 19, Para. B.1).

## More collateral is a bad idea when cash flow is the problem

Collateral does not fix weak cash flow. SOP 50 10 8.1 calls cash flow the primary source of repayment. It requires a decline when cash flow cannot support the loan, whatever the collateral (Sec. B, Ch. 1, Para. C, p. 118). If your coverage is thin, pledging a home gives the lender comfort and gives you more to lose.

Do not pledge personal real estate for a loan of $50,000 or less on a program where SBA requires no collateral. Ask first whether the lender needs it. A lender's own policy can still ask, so get the answer in writing.

Before you sign, ask five questions.

1. Which assets are you taking, and why those?
2. Can the lien cover only the asset I am financing?
3. Does the lien cover assets I buy later?
4. Are any assets released as the balance falls?
5. Does a default on this loan trigger a default on my other debt?

## Sources

- [SOP 50 10 8.1, App. 19, 7(a) Collateral Requirements, Paras. A.1, B.1 to B.6 (pp. 404-413)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)
- [SOP 50 10 8.1, Sec. B, Ch. 1, Para. C, Credit Standards (p. 118)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)
- [Federal Reserve Banks, 2026 Report on Employer Firms: Findings from the 2025 Small Business Credit Survey, p. 9](https://www.fedsmallbusiness.org/2026-report-on-employer-firms)
- [OCC, Community Developments Insights: USDA Rural Development Business and Industry Guaranteed Loan Program (June 2025), p. 7](https://occ.gov/publications-and-resources/publications/community-affairs/community-developments-insights/pub-insights-june-2025.pdf)
- [SBA Form 148L, Unconditional Limited Guarantee (collateral and recourse option)](https://legacy.sba.gov/document/sba-form-148-l-limited-guarantee)