SBA 7(a) Q&A
Short answer
Yes, an existing lawsuit against the target business can significantly jeopardize or kill SBA 7(a) loan approval, especially if it represents substantial financial risk.
Lenders must assess all risks associated with the target business, including legal liabilities. A significant lawsuit could indicate operational issues, deplete cash flow through legal fees, or result in a judgment that impairs the business's ability to repay the loan, making it ineligible for an SBA guarantee.
If the business you are acquiring for $700,000 is facing a $250,000 lawsuit for a product defect, the lender will likely pause or deny the loan, viewing the potential liability as too high a risk for the business to service new debt.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
7(a) Loan Program — Terms, Conditions, and Eligibility
U.S. Small Business Administration · Official SBA source
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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