{"ok":true,"canonical_url":"https://dealroom.so/sba-7a/questions/what-if-the-business-i-m-acquiring-has-existing-litigation-or-legal-disputes","api_url":"https://dealroom.so/api/public/questions/what-if-the-business-i-m-acquiring-has-existing-litigation-or-legal-disputes","question":"What if the business I'm acquiring has existing litigation or legal disputes?","topic":"What kills approval","audience":"borrower","bot_mode":"buyer","short_answer":"Existing litigation or legal disputes can complicate or even prevent an SBA 7(a) loan approval, as they pose significant financial and operational risks.","rule":"Lenders conduct extensive due diligence, including legal review. Pending litigation represents potential liabilities, legal costs, and operational distractions that can severely impact the business's cash flow and viability, making it a high-risk proposition.","example":"If the business you're acquiring for $900,000 is facing a $200,000 lawsuit from a former employee, the lender would likely put the loan on hold. They would require a legal opinion on the likelihood of success and potential damages, and may require a large escrow or denial.","what_lenders_check":"Lenders worry about undisclosed liabilities and unforeseen costs. They will require full disclosure of all legal matters and assess the potential impact on the business's ability to repay the loan and its overall financial health.","required_facts":["Existing litigation","Legal disputes","Financial risk","Operational risk","Due diligence"],"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":"Existing Litigation","url":"https://dealroom.so/glossary/existing-litigation"},{"term":"Litigation","url":"https://dealroom.so/glossary/litigation"},{"term":"Acquiring entity","url":"https://dealroom.so/glossary/acquiring-entity"},{"term":"Trade or business","url":"https://dealroom.so/glossary/trade-or-business"},{"term":"Alienate the Business","url":"https://dealroom.so/glossary/alienate-the-business"},{"term":"Consolidate Existing Business Debt","url":"https://dealroom.so/glossary/consolidate-existing-business-debt"}],"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":"2026-06-14","sba_rule_sources_checked_through":"2026-06-14"},"citation":{"label":"DealRoom.so SBA 7(a) Q&A","url":"https://dealroom.so/sba-7a/questions/what-if-the-business-i-m-acquiring-has-existing-litigation-or-legal-disputes","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."]}