SBA 7(a) Q&A
Short answer
Yes, lenders typically require an assignment of life insurance on key principals for SBA 7(a) loans, especially for acquisitions, to protect against the loss of management.
Life insurance is generally required on the lives of all owners and key management personnel whose absence would cause a substantial adverse impact on the business. The policy amount should be sufficient to cover the outstanding balance of the loan, or at least a significant portion, and the lender will be named as beneficiary or assignee.
A buyer is acquiring a business with a $1,000,000 SBA loan. The lender will require the buyer to obtain a life insurance policy for at least $1,000,000, naming the lender as the assignee. This protects the loan if the buyer, as the key operator, unexpectedly passes away.
Insider move
Lenders want to mitigate the risk associated with the loss of key personnel, as this could severely impact the business's ability to repay the loan. They ensure the policy is in force, the premiums are paid, and the assignment is correctly executed.
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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