SBA 7(a) Q&A
Short answer
A pending major lawsuit against the acquired business is a significant risk that could prevent SBA 7(a) loan approval, especially if the potential liability is substantial and unresolved.
Lenders and the SBA conduct thorough due diligence, which includes reviewing legal issues. A pending major lawsuit represents an unquantified and potentially large financial liability that could severely impact the business's cash flow, asset value, or even its continued operation. Unless the lawsuit can be resolved or adequately mitigated (e.g., through robust insurance, a strong legal defense, or an escrow), the lender will likely view the risk as too high for SBA loan approval.
You're acquiring a software company for $1,500,000, but during due diligence, a patent infringement lawsuit is discovered with potential damages of $1,000,000. Unless this lawsuit is resolved or dismissed, the SBA 7(a) loan will likely be denied due to the substantial financial risk.
Insider move
Lenders are concerned about the financial impact of a lawsuit, potential legal costs, the distraction to management, and the overall viability of the business if a large judgment is rendered. They will require legal opinions and a clear understanding of the case's potential outcomes.
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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