For SBA lenders
Short answer
Yes, a decreasing term life insurance policy can be acceptable if its coverage amount remains sufficient to protect the outstanding loan balance for a reasonable period, typically for the initial, higher-risk years.
While whole life or level term policies are often preferred for their consistent coverage, a decreasing term policy may be allowed. The key is that the death benefit must adequately cover the outstanding loan balance, particularly during the early years when the principal is highest and business stability may be less certain. The lender must continuously monitor the coverage.
For a $1,000,000 7(a) loan, a borrower obtains a decreasing term policy. The lender reviews the policy's declining benefit schedule to ensure it always exceeds the projected outstanding loan balance for at least the first five to seven years, or as determined prudent.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
7(a) Loan Program — Terms, Conditions, and Eligibility
U.S. Small Business Administration · Official SBA source
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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