SBA 7(a) Q&A
Short answer
Life insurance collateral assignment is generally required for all principals actively involved in the business, especially those whose death would significantly impair the business's ability to repay the loan.
The SBA requires life insurance on key principals when their death or permanent disability would jeopardize the business's ability to operate and repay the loan. This is a risk mitigation strategy to ensure loan repayment in such an event. The policy should name the lender as the assignee for the amount of the loan.
For a $750,000 acquisition, the new owner is the sole operator. The lender requires a $750,000 life insurance policy on the new owner, assigned to the lender as collateral.
Insider move
Lenders assess the impact of a principal's death on the business's continued viability. They verify the policy amount, beneficiary designation, and ensure proper assignment to protect the loan. They also ensure premiums are paid and the policy remains in force.
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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