For SBA lenders
Short answer
Failure to adhere to prudent lending standards for collateral can result in a guaranty repair, where the SBA reduces its guaranteed percentage, or an outright denial of the guaranty purchase request.
The SBA expects lenders to apply the same sound lending practices to 7(a) loans as they would to their non-SBA portfolio. If a lender's collateral decisions are deemed imprudent (e.g., failing to secure available assets, over-valuing collateral, or poor lien perfection), the SBA may reduce its exposure or deny the guaranty entirely during a purchase review.
During a guaranty purchase review, the SBA discovers the lender failed to take an available first lien on significant personal real estate, despite a collateral shortfall on business assets. The SBA could apply a guaranty repair, reducing its payout due to the lender's failure to adhere to prudent collateral standards.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 - Lender and Development Company Loan Programs
SOP 50 57 - 7(a) Loan Servicing and Liquidation
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 prudent lending standards
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