SBA 7(a) Q&A
Short answer
Existing litigation or legal disputes can complicate or even prevent an SBA 7(a) loan approval, as they pose significant financial and operational risks.
Lenders conduct extensive due diligence, including legal review. Pending litigation represents potential liabilities, legal costs, and operational distractions that can severely impact the business's cash flow and viability, making it a high-risk proposition.
If the business you're acquiring for $900,000 is facing a $200,000 lawsuit from a former employee, the lender would likely put the loan on hold. They would require a legal opinion on the likelihood of success and potential damages, and may require a large escrow or denial.
Insider move
Lenders worry about undisclosed liabilities and unforeseen costs. They will require full disclosure of all legal matters and assess the potential impact on the business's ability to repay the loan and its overall financial health.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 - Lender and Development Company Loan Programs
Last checked 2026-06-14. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-14 · SBA sources checked through 2026-06-14. 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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