For SBA lenders
Short answer
Lenders must ensure all collateral disposition actions are "commercially reasonable," meaning conducted in good faith, in a manner consistent with market practices, and designed to maximize recovery, as documented by appraisals, marketing efforts, and sales results.
The Uniform Commercial Code (UCC) mandates that collateral disposition be commercially reasonable. The SBA applies this standard to 7(a) loan liquidations, requiring lenders to demonstrate that they made diligent efforts to obtain fair market value for assets, whether through public auction, private sale, or other recognized methods, to minimize loss to the government.
A lender repossesses business equipment from a defaulted 7(a) loan. To prove commercially reasonable disposition, the lender obtains an appraisal, advertises the equipment widely, solicits multiple bids, and sells it to the highest bidder at a public auction, documenting the entire process.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 57 - 7(a) Loan Servicing and Liquidation
Universal Purchase Package (UPP)
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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