For SBA lenders
Short answer
When structuring life insurance collateral assignments for multiple key principals, the lender must verify the adequacy of coverage for each, ensure proper assignment to the lender, and confirm premiums are paid. The total coverage should mitigate the risk of loss of key management.
SBA policy generally requires life insurance on key principals for 7(a) loans to protect against the unexpected loss of a vital individual. For multiple principals, the lender must determine the appropriate coverage amount for each, typically commensurate with their individual impact on the business's operations and financial health. Each policy must be collaterally assigned to the lender, and the lender must verify that premiums are current and that the assignment properly names the lender as beneficiary to the extent of the loan balance.
A $1 million 7(a) loan has two key principals, one owning 70% and the other 30%, both vital to operations. The lender requires $700,000 life insurance on the 70% owner and $300,000 on the 30% owner. The lender ensures both policies are collaterally assigned and monitors premium payments.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 - Lender and Development Company Loan Programs
Last checked 2026-06-13. 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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