{"ok":true,"canonical_url":"https://dealroom.so/sba-7a/questions/what-if-the-business-i-want-to-buy-has-pending-litigation-or-unresolved-legal-claims","api_url":"https://dealroom.so/api/public/questions/what-if-the-business-i-want-to-buy-has-pending-litigation-or-unresolved-legal-claims","question":"What if the business I want to buy has pending litigation or unresolved legal claims?","topic":"What kills approval","audience":"borrower","bot_mode":"buyer","short_answer":"Pending litigation or unresolved legal claims can be a significant hurdle for SBA loan approval. Lenders will require detailed information and may require a resolution before closing.","rule":"Lenders assess contingent liabilities, including lawsuits, as part of their due diligence. If the litigation represents a material financial risk or could jeopardize the business's operations or assets, it may prevent loan approval. Minor or frivolous claims might be acceptable if well-defended, but significant lawsuits usually require resolution or a strong indemnification from the seller.","example":"If the business you're acquiring is facing a $250,000 patent infringement lawsuit, the lender would likely require the seller to resolve it or place a substantial amount in escrow before the SBA loan could close.","what_lenders_check":"Lenders are highly concerned about potential financial liabilities that could impact the business's ability to repay the loan or reduce the value of collateral. They seek to mitigate all such risks before funding an SBA loan.","required_facts":["Pending litigation","Unresolved claims","Financial risk","Due diligence","Resolution required"],"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 Litigation","url":"https://dealroom.so/glossary/pending-litigation"},{"term":"Litigation","url":"https://dealroom.so/glossary/litigation"},{"term":"Trade or business","url":"https://dealroom.so/glossary/trade-or-business"},{"term":"Repair to the guaranty","url":"https://dealroom.so/glossary/repair-to-the-guaranty"},{"term":"Pending lawsuit","url":"https://dealroom.so/glossary/pending-lawsuit"},{"term":"Unresolved judgment","url":"https://dealroom.so/glossary/unresolved-judgment"}],"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-want-to-buy-has-pending-litigation-or-unresolved-legal-claims","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."]}