Does an SBA loan require collateral?

“A loan request must not be declined solely because collateral is inadequate. SBA recognizes that Applicants may demonstrate repayment ability even when they lack collateral sufficient to repay the loan in full upon default. However, the SBA guaranty is not a substitute for available collateral.

“For 7(a) Small Loans of $50,000 or less, collateral is not required. Lenders may, but are not required to, take additional collateral consistent with their own policies and procedures.

“For purposes of any requirement to take available equity in personal real estate, the Lender is not required to take a lien when equity is less than 25% of the property’s fair market value. For this purpose, “lack of equity” means that the property’s fair market value, after giving effect to existing liens does not provide at least 25% equity; the mere presence of a prior lien that restricts or prohibits placement of a junior lien does not, by itself, constitute “lack of equity” under SBA rules.

“SBA usually takes a second lien position on Project Property but may have a shared lien (pari passu) with the Third Party Lender. SBA’s second lien position will generally be considered adequate.

“If the loan is not fully collateralized by business assets, available personal assets must be pledged to secure the guaranty.

“If utilizing 7(a) Small or SBA Express to support a change of ownership, the fully secured provisions apply, except the Lender is not required to take available equity in other commercial real estate solely owned by any Co-Borrowers, direct and/or indirect owners of 20% or more of the Applicant, guarantors and Supplemental Guarantors.