What are the specific lien priority requirements for lenders on both business and personal collateral securing a 7(a) loan, particularly when junior liens exist?

The rule

For 7(a) loans, the SBA generally requires a first lien position on all business assets being pledged as collateral (e.g., accounts receivable, inventory, equipment). For personal real estate, a first or second lien position is usually required, provided there is sufficient equity to secure the loan. While junior liens may be taken on certain assets, the lender must ensure that prior liens do not consume all the equity, impair the SBA's recovery prospects, or place undue burden on the borrower's cash flow. Any existing liens must be documented, and subordination agreements obtained where necessary.

Facts that matter

• ✓Lien priority
• ✓Business collateral
• ✓Personal collateral
• ✓Junior liens
• ✓