{"ok":true,"canonical_url":"https://dealroom.so/sba-7a/questions/what-if-the-business-i-m-acquiring-has-a-pending-lawsuit-that-could-result-in-a-large-fina","api_url":"https://dealroom.so/api/public/questions/what-if-the-business-i-m-acquiring-has-a-pending-lawsuit-that-could-result-in-a-large-fina","question":"What if the business I'm acquiring has a pending lawsuit that could result in a large financial payout?","topic":"What kills approval","audience":"borrower","bot_mode":"buyer","short_answer":"A pending lawsuit with a potential large financial payout can be a significant obstacle or even a deal-killer for an SBA 7(a) acquisition loan.","rule":"Lenders assess all material risks to the acquired business, and pending litigation with substantial financial exposure is a major concern. It can significantly impact the business's cash flow, valuation, and ability to repay the loan. The SBA requires businesses to be free of unresolved contingent liabilities that could threaten their viability.","example":"A buyer is acquiring a construction company for $1,500,000. During due diligence, a pending lawsuit is discovered where the company is being sued for $500,000 for a past construction defect. The lender will likely put the loan on hold, requiring legal counsel to assess the likelihood and magnitude of the payout. If the risk is too high, the loan will be declined unless the seller resolves the lawsuit before closing.","what_lenders_check":"Lenders are wary of any contingent liabilities that could deplete the business's assets or cash flow. They will require detailed legal opinions and may insist on indemnification from the seller or resolution of the lawsuit before proceeding with the loan.","required_facts":["Pending lawsuit","Large financial payout","Contingent liability","Cash flow impact","Deal risk"],"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":"M&A advisor","url":"https://dealroom.so/glossary/ma-advisor"},{"term":"Pending lawsuit","url":"https://dealroom.so/glossary/pending-lawsuit"},{"term":"Acquiring entity","url":"https://dealroom.so/glossary/acquiring-entity"},{"term":"Pending Litigation","url":"https://dealroom.so/glossary/pending-litigation"},{"term":"Alienate the Business","url":"https://dealroom.so/glossary/alienate-the-business"},{"term":"Affiliated Business","url":"https://dealroom.so/glossary/affiliated-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/what-if-the-business-i-m-acquiring-has-a-pending-lawsuit-that-could-result-in-a-large-fina","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."]}