{"ok":true,"canonical_url":"https://dealroom.so/sba-7a/questions/if-the-business-i-m-acquiring-has-a-pending-major-lawsuit-how-will-this-affect-my-sba-7-a-","api_url":"https://dealroom.so/api/public/questions/if-the-business-i-m-acquiring-has-a-pending-major-lawsuit-how-will-this-affect-my-sba-7-a-","question":"If the business I'm acquiring has a pending major lawsuit, how will this affect my SBA 7(a) loan approval?","topic":"What kills approval","audience":"borrower","bot_mode":"buyer","short_answer":"A pending major lawsuit against the acquired business is a significant risk that could prevent SBA 7(a) loan approval, especially if the potential liability is substantial and unresolved.","rule":"Lenders and the SBA conduct thorough due diligence, which includes reviewing legal issues. A pending major lawsuit represents an unquantified and potentially large financial liability that could severely impact the business's cash flow, asset value, or even its continued operation. Unless the lawsuit can be resolved or adequately mitigated (e.g., through robust insurance, a strong legal defense, or an escrow), the lender will likely view the risk as too high for SBA loan approval.","example":"You're acquiring a software company for $1,500,000, but during due diligence, a patent infringement lawsuit is discovered with potential damages of $1,000,000. Unless this lawsuit is resolved or dismissed, the SBA 7(a) loan will likely be denied due to the substantial financial risk.","what_lenders_check":"Lenders are concerned about the financial impact of a lawsuit, potential legal costs, the distraction to management, and the overall viability of the business if a large judgment is rendered. They will require legal opinions and a clear understanding of the case's potential outcomes.","required_facts":["Pending lawsuit","Potential liability","Legal costs","Due diligence findings","Resolution likelihood"],"source_families":["SOP 50 10 - Lender and Development Company Loan Programs","13 CFR Part 120 - Business Loans"],"official_sources":[{"title":"SOP 50 10 - Lender and Development Company Loan Programs","url":"https://www.sba.gov/sites/default/files/2025-05/SOP%2050%2010%208%20Technical%20Updates%20effective%206.1.2025.docx"},{"title":"13 CFR Part 120 - Business Loans","url":"https://www.ecfr.gov/current/title-13/chapter-I/part-120"}],"related_questions":[{"question":"What if the business I'm acquiring has poor historical cash flow or declining revenues for the last two years?","url":"https://dealroom.so/sba-7a/questions/what-if-the-business-i-m-acquiring-has-poor-historical-cash-flow-or-declining-revenues-for"},{"question":"Can a high customer concentration (e.g., one customer is 50% of revenue) jeopardize my SBA 7(a) loan approval?","url":"https://dealroom.so/sba-7a/questions/can-a-high-customer-concentration-e-g-one-customer-is-50-of-revenue-jeopardize-my-sba-7-a-"},{"question":"What common issues can cause an SBA 7(a) loan application to be denied?","url":"https://dealroom.so/sba-7a/questions/what-common-issues-can-cause-an-sba-7-a-loan-application-to-be-denied"},{"question":"Can an SBA 7(a) loan be used to purchase a business that is currently unprofitable?","url":"https://dealroom.so/sba-7a/questions/can-an-sba-7-a-loan-be-used-to-purchase-a-business-that-is-currently-unprofitable"},{"question":"What happens if the acquired business declines significantly during the loan underwriting period?","url":"https://dealroom.so/sba-7a/questions/what-happens-if-the-acquired-business-declines-significantly-during-the-loan-underwriting-"},{"question":"What if the business I'm buying has existing tax liens or other government debts?","url":"https://dealroom.so/sba-7a/questions/what-if-the-business-i-m-buying-has-existing-tax-liens-or-other-government-debts"}],"related_terms":[{"term":"Pending lawsuit","url":"https://dealroom.so/glossary/pending-lawsuit"},{"term":"M&A advisor","url":"https://dealroom.so/glossary/ma-advisor"},{"term":"Acquiring entity","url":"https://dealroom.so/glossary/acquiring-entity"},{"term":"Will/trust","url":"https://dealroom.so/glossary/will-trust"},{"term":"Pending Litigation","url":"https://dealroom.so/glossary/pending-litigation"},{"term":"Alienate the Business","url":"https://dealroom.so/glossary/alienate-the-business"}],"related_tools":[{"name":"SBA 7(a) payment & fee calculator","url":"https://dealroom.so/sba-7a/calculator"},{"name":"Find an active SBA 7(a) lender","url":"https://dealroom.so/lenders"}],"data_freshness":{"last_reviewed":"2026-06-13","sba_rule_sources_checked_through":"2026-06-13"},"citation":{"label":"DealRoom.so SBA 7(a) Q&A","url":"https://dealroom.so/sba-7a/questions/if-the-business-i-m-acquiring-has-a-pending-major-lawsuit-how-will-this-affect-my-sba-7-a-","source_type":"DealRoom Q&A"},"caveats":["Grounded in the current SBA rulebook; verify against official sources before relying on it for a live deal.","Not legal, tax, or financial advice and not an approval decision."]}