SBA 7(a) Q&A
Short answer
The SBA requires the policy to be 'collateral assigned' to the lender, ensuring the lender has a first claim to the death benefit up to the outstanding loan balance. The policy must be sufficient to cover the collateral shortfall.
SBA SOP 50 10 mandates that the lender be named as a 'collateral assignee' on the policy. This means the lender has a perfected security interest in the death benefit. The policy amount must be at least equal to the identified collateral shortfall or the portion of the loan that is unsecured by other assets.
An SBA loan has a $100,000 collateral shortfall. The borrower secures a $100,000 term life policy. The lender is added to the policy via a collateral assignment form, which specifies the lender's claim on the death benefit.
Insider move
Lenders carefully verify that the collateral assignment is properly executed and recorded with the insurance company, and that the policy remains in force for the loan's duration.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 — Lender and Development Company Loan Programs
U.S. Small Business Administration · SBA Standard Operating Procedure
Last checked 2026-06-15. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-15 · SBA sources checked through 2026-06-15. DealRoom analysis of business life-insurance and SBA collateral-insurance practice (SOP 50 10 8). Not insurance, legal, or tax advice. 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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