SBA loan basics
Short answer
If you default, the lender will first try to collect from you and liquidate collateral. If unsuccessful, the lender can then apply to the SBA to purchase the guaranteed portion of the loan.
Upon default, the lender will exhaust all reasonable collection efforts, including calling on personal guarantees and liquidating collateral. If these efforts don't fully cover the debt, the lender can submit a 'Universal Purchase Package' to the SBA, which, if approved, will pay the guaranteed portion to the lender.
A business defaults on its $500,000 SBA loan (75% guaranteed). The bank liquidates $100,000 in collateral and collects $50,000 from the personal guarantor. The remaining $350,000 balance means the SBA will pay the bank 75% of that ($262,500).
Insider move
Lenders must follow strict SBA liquidation procedures to preserve the guarantee. Improper collection or collateral liquidation can lead to the SBA reducing or denying the guaranty purchase.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 57 - 7(a) Loan Servicing and Liquidation
Universal Purchase Package (UPP)
Request to Honor SBA 7(a) Loan Guaranty
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.
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