For SBA lenders
Short answer
Yes, lenders must obtain a collateral assignment of the life insurance policy and ensure the policy remains in force, with the lender designated as beneficiary for at least the guaranteed amount.
When life insurance is required, the lender must obtain a properly executed collateral assignment of the policy. This assignment names the lender as the primary beneficiary for the amount of the guaranteed loan portion or the policy's face value, whichever is less, and gives the lender control over the policy. The lender is also responsible for verifying that premiums are paid and the policy remains active throughout the loan term, or for obtaining appropriate waivers if the policy lapses.
A lender requires a $500,000 life insurance policy for a key principal. The lender obtains a collateral assignment from the borrower, files it with the insurance company, and verifies the lender is listed as the assignee. They then establish a tickler system to annually confirm the policy is in force.
Insider move
Lenders must ensure the assignment is valid and enforceable. Failure to properly assign the policy, or to monitor its in-force status, could result in the loss of this collateral and potentially lead to a guaranty repair if the principal dies and the policy proceeds are not collectible by the lender.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 - Lender and Development Company Loan Programs
Last checked 2026-06-13. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-13 · SBA sources checked through 2026-06-13. DealRoom analysis of public SBA 7(a) lending records (FY2020–present). Grounded in the current SBA rulebook; verify against the official sources above before relying on it for a live deal. Not legal, tax, or financial advice, and not an approval decision.
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