For SBA lenders
Short answer
Upon default, the lender must conduct a comprehensive review of the loan file, attempt to cure the default through informal means, and send appropriate demand letters to the borrower and guarantors.
Before initiating formal liquidation, the lender must engage in diligent servicing actions. This includes reviewing all loan documents, collateral, and guaranty agreements, determining the precise nature and timing of the default, and attempting to resolve the issue with the borrower through workouts or payment plans. Formal demand letters must be issued to establish default and accelerate the debt.
A borrower misses two consecutive payments. The lender first attempts phone contact, then sends a 'Notice of Default' letter. After no resolution, the lender sends a 'Demand for Payment' letter to the borrower and all guarantors, accelerating the full amount due, before considering legal action or formal liquidation.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 57 - 7(a) Loan Servicing and Liquidation
Servicing and Liquidation Actions 7(a) Lender Matrix
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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