For SBA lenders
Short answer
Yes, a term life insurance policy can be used for collateral assignment on an SBA 7(a) loan, provided its term extends for at least the full term of the loan or a substantial portion of it, and it has sufficient coverage.
The SBA allows for term life insurance for collateral assignment as long as the policy's duration provides adequate coverage for the period of risk. Lenders prefer policies that match or exceed the loan term to ensure continuous coverage for the key person. The policy must be irrevocably assigned to the lender.
A borrower takes a 10-year, $750,000 7(a) loan. They have a 15-year term life insurance policy with a $1,000,000 death benefit. This policy would be acceptable for collateral assignment as its term and coverage are adequate. The lender would secure the collateral assignment.
Insider move
Lenders must verify the term life policy's coverage amount and duration. Ensuring the policy remains in force and the assignment is properly recorded is crucial. Short-term policies that expire well before the loan term may necessitate renewal requirements or a different policy.
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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