For SBA lenders
Short answer
Yes, a lender can rely on a universal life insurance policy with cash value for collateral assignment, but only the cash surrender value is considered collateral, and the lender must ensure the policy remains in force.
While the primary purpose of life insurance is death benefit protection, policies with a cash surrender value can offer additional collateral. The lender must obtain a full collateral assignment, ensuring they have control over the cash value and are notified if the policy is at risk of lapsing due to non-payment of premiums.
A key principal for a $400,000 7(a) loan has a universal life policy with a $50,000 cash value. The lender obtains a collateral assignment on this policy, noting that only the cash value serves as tangible collateral, in addition to the death benefit.
Lenders must monitor the cash value and premium payments to ensure the policy does not lapse or its value erode. The assignment must be properly filed with the insurance company and the lender's interest protected.
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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