SBA 7(a) Q&A
Short answer
A pending lawsuit with a potential large financial payout can be a significant obstacle or even a deal-killer for an SBA 7(a) acquisition loan.
Lenders assess all material risks to the acquired business, and pending litigation with substantial financial exposure is a major concern. It can significantly impact the business's cash flow, valuation, and ability to repay the loan. The SBA requires businesses to be free of unresolved contingent liabilities that could threaten their viability.
A buyer is acquiring a construction company for $1,500,000. During due diligence, a pending lawsuit is discovered where the company is being sued for $500,000 for a past construction defect. The lender will likely put the loan on hold, requiring legal counsel to assess the likelihood and magnitude of the payout. If the risk is too high, the loan will be declined unless the seller resolves the lawsuit before closing.
Insider move
Lenders are wary of any contingent liabilities that could deplete the business's assets or cash flow. They will require detailed legal opinions and may insist on indemnification from the seller or resolution of the lawsuit before proceeding with the loan.
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.
More on what kills approval
Terms in this answer
Pre-qualify your SBA 7(a) deal
Tell us the business, the price, and where you are — we'll point you to the lenders most likely to fund a deal like yours and flag anything that trips up approval.
Free · No documents · Usually same-day