For SBA lenders
Short answer
Before submitting a 7(a) liquidation plan, a lender must demonstrate diligent and prudent collection efforts, including attempting to contact the borrower, reviewing financial statements, performing site visits, sending demand letters, and attempting voluntary workout options. These efforts must be documented.
SBA requires lenders to act as a prudent lender would for its own uninsured loans when a 7(a) loan defaults. This includes aggressive and timely collection actions to minimize losses. The liquidation plan submitted to SBA must detail these efforts, demonstrating that all reasonable steps were taken to mitigate loss before formal liquidation begins.
After a borrower misses three consecutive payments, a lender attempts phone calls, sends a demand letter, and performs a site visit to the business. The lender then reviews the borrower's updated financial information, which shows no path to recovery. Only after these documented efforts does the lender submit a liquidation plan to the SBA, outlining the collection attempts.
Insider move
Lenders are concerned that insufficient collection efforts prior to liquidation will lead to a repair or denial of the SBA guaranty. The SBA scrutinizes the 'prudence' of these initial collection actions to ensure the lender acted responsibly to protect the government's interest.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
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.
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