For SBA lenders
Short answer
Collateral assignment of life insurance is generally required for all principals who own 20% or more of the business, or other key individuals, where their death would severely impact the business's ability to repay the loan.
The SBA requires life insurance to protect against the loss of key individuals whose expertise, management, or financial contribution is essential to the success of the business. The policy must be collaterally assigned to the lender, with the lender named as beneficiary, for an amount sufficient to pay off the SBA loan.
A $1,000,000 7(a) loan is made to a business with a sole owner and operator. The lender requires a $1,000,000 life insurance policy on the owner, collaterally assigned to the lender, to mitigate the risk of the business failing upon his death.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 - Lender and Development Company Loan Programs
Standard 7(a) Authorization File Library
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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