For SBA lenders
Short answer
The lender must obtain a collateral assignment of a life insurance policy on key principals, with the lender designated as the first loss payee, for at least the full loan amount or the guaranteed portion, to be maintained until the loan is satisfied.
SOP 50 10 requires collateral assignment of life insurance on key principals (owners or managers whose death would adversely affect the business's ability to repay the loan). The lender must be listed as the sole loss payee or assignee, and the policy amount must be sufficient to cover the outstanding loan balance or guaranteed portion.
For a $1,000,000 loan, the lender obtains a $1,000,000 life insurance policy on the sole proprietor. The policy is collaterally assigned to the lender, who is designated as the first beneficiary.
Insider move
Lenders must ensure the policy is active, the collateral assignment is properly executed and recorded with the insurer, and the policy amount is adequate. Failure to properly secure and monitor this collateral can impair recovery in case of the key principal's death.
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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