For SBA lenders
Short answer
A lender generally cannot charge off the guaranteed portion of a 7(a) loan without prior SBA approval. However, the lender may charge off the unguaranteed portion after exhausting all reasonable recovery steps and receiving SBA concurrence on the liquidation strategy.
For 7(a) loans, the lender must follow SBA-approved liquidation plans. Charging off the SBA-guaranteed portion requires a purchase demand to the SBA or specific SBA authorization. Lenders are expected to pursue all reasonable collection efforts. The unguaranteed portion can be charged off by the lender internally after all reasonable liquidation efforts are exhausted and in coordination with the SBA for the guaranteed portion.
After extensive liquidation efforts, a lender has recovered $100,000 on a $500,000 7(a) loan ($425,000 guaranteed). The remaining collateral is exhausted, and the borrower has no further ability to pay. The lender would submit a purchase demand to the SBA for the guaranteed portion and, upon concurrence, charge off the remaining $75,000 unguaranteed portion.
Insider move
Lenders must diligently pursue all avenues of recovery and obtain SBA approval for significant liquidation actions. Premature or unauthorized charge-offs, especially of the guaranteed portion, can result in the denial of the SBA guaranty.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 57 - 7(a) Loan Servicing and Liquidation
Universal Purchase Package (UPP)
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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