For SBA lenders
Short answer
A lender may waive the life insurance requirement only if the SBA loan is fully secured by collateral other than the personal guarantee, or if the cost of the insurance is prohibitive relative to the loan amount or the borrower's financial capacity.
SBA policy generally requires life insurance on key principals to protect the collateral position and repayment ability of the loan in the event of the principal's death. However, this requirement can be waived by the lender if the loan is adequately collateralized by other assets, or if the cost of the premiums creates an undue financial burden on the borrower or is de minimis compared to the loan risk.
A $100,000 7(a) loan is secured by real estate valued at $200,000, providing sufficient collateral coverage. The lender determines that life insurance on the sole proprietor is not necessary because the asset coverage is robust, and the loan is deemed fully secured.
Insider move
Lenders must document their rationale for any waiver, demonstrating that the loan is adequately protected by other means or that the waiver aligns with prudent lending standards and SBA guidance to prevent a potential guaranty repair in case of a claim.
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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