For SBA lenders
Short answer
Yes, a term life insurance policy is acceptable for collateral assignment on key principals, provided the term of the policy is sufficient to cover the SBA loan's term or is renewable for the loan's duration.
SOP 50 10 does not mandate whole life insurance; term life insurance is acceptable. The critical requirement is that the policy remains in force for the life of the loan and is assigned to the lender. Renewability and sufficient coverage amount are key considerations.
A 7(a) loan has a 10-year term. The lender accepts a 10-year level term life insurance policy on the key principal, collaterally assigned, ensuring coverage for the entire loan duration.
Insider move
Lenders must verify the policy's term, renewability, and amount. Policies that expire before the loan matures or have insufficient coverage will not adequately protect the lender's interest and the SBA guaranty.
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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