For SBA lenders
Short answer
For multiple key principals, a lender should obtain separate life insurance policies or a single policy covering all, with the lender named as collateral assignee for each policy or portion.
If there are multiple key principals whose loss could jeopardize the business, the lender should secure life insurance for each, proportionate to their impact on the business. The lender must be listed as the collateral assignee on each policy for at least the outstanding balance of the loan, or a portion thereof depending on the risk assessment.
A business acquisition with a $2,000,000 7(a) loan has two equal partners, both key to operations. The lender requires each partner to carry a $1,000,000 life insurance policy, naming the lender as the collateral assignee on both policies, covering the total loan exposure.
Insider move
Ensuring proper assignment and adequate coverage for multiple key principals is crucial. Lenders must periodically verify policies remain in force and assignments are current, especially during servicing.
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.
More on life insurance
Terms in this answer
Pre-qualify your SBA 7(a) deal
Tell us the business, the price, and where you are — we'll point you to the lenders most likely to fund a deal like yours and flag anything that trips up approval.
Free · No documents · Usually same-day