For SBA lenders
Short answer
The lender must be named as the sole assignee on the life insurance policy for an amount at least equal to the guaranteed portion of the loan, and the assignment must be acknowledged by the insurance carrier.
When life insurance is required as collateral, the lender must obtain a Collateral Assignment of Life Insurance. This legally transfers the policy's benefits to the lender up to the amount of the assignment. The assignment must be properly executed, acknowledge the lender's interest, and be recorded by the insurance company to be effective.
A $1M 7(a) loan with a 75% guaranty requires life insurance on the key principal. The lender ensures the Collateral Assignment of Life Insurance form names 'ABC Bank' as the assignee, for an amount not less than $750,000. The assignment is signed by the borrower and acknowledged in writing by the insurance carrier before closing.
Insider move
Lenders must ensure the assignment is valid, enforceable, and correctly documented to protect their interest. Errors in the assignment or failure to obtain proper acknowledgment from the insurer can result in a loss of collateral and potentially a guaranty repair.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 - Lender and Development Company Loan Programs
Last checked 2026-06-14. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-14 · SBA sources checked through 2026-06-14. 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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