SBA 7(a) Q&A
Short answer
Pending litigation or unresolved legal claims can be a significant hurdle for SBA loan approval. Lenders will require detailed information and may require a resolution before closing.
Lenders assess contingent liabilities, including lawsuits, as part of their due diligence. If the litigation represents a material financial risk or could jeopardize the business's operations or assets, it may prevent loan approval. Minor or frivolous claims might be acceptable if well-defended, but significant lawsuits usually require resolution or a strong indemnification from the seller.
If the business you're acquiring is facing a $250,000 patent infringement lawsuit, the lender would likely require the seller to resolve it or place a substantial amount in escrow before the SBA loan could close.
Insider move
Lenders are highly concerned about potential financial liabilities that could impact the business's ability to repay the loan or reduce the value of collateral. They seek to mitigate all such risks before funding an SBA 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 2026-06-14. 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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