SBA SOP 50 10 8, B.Ch1.C.3 — Collateral
Verbatim text of SBA SOP 50 10 8 section B.Ch1.C.3 (Collateral), effective 2025-06-01. 3 provision(s) quoted from the SOP PDF. SBA's own document page serves superseded editions, and the SOP is further amended by policy notices — read this with the notices that touch it.
Verbatim regulatory text
Verbatim provisions from SBA SOP 50 10 8, B.Ch1.C.3 — Collateral — each quote is a verified substring of the regulator-published source snapshot, not retyped. Quoted for reference; this is not legal advice. The operational layer (P&P updates, prompts) lives in the regulation update kits.
SOP 50 10 8 B.Ch1.C.3
7 sections · 10,343 characters of verbatim text. Open a section to read it, or . Every section below is in the page source whether open or closed.
§3. Collateral See Section A, Ch. 5, Para. A. for guaranty…1,107 ch
3. Collateral See Section A, Ch. 5, Para. A. for guaranty requirements. Lenders must use commercially reasonable and prudent practices to identify collateral that conforms to procedures at least as thorough as those used for their similarly-sized non-SBA guaranteed commercial loans. Decisions regarding what collateral must be taken to secure a loan are based on the circumstances of the individual loan, including size, and must meet the minimum requirements in this section. When loan proceeds will be used to refinance existing debt, except for trading assets, the loan must be secured with at least the same collateral and lien priority as the debt that is being refinanced. When the debt being refinanced is considered to be over collateralized based upon SBA collateral requirements and the SBA loan will remain fully secured, the Lender may approve the release of excess collateral. Substitute collateral may be offered providing it is of comparable value and useful life and is determined to be acceptable by SBA or a PLP Lender processing the loan under its PLP authority. Adequacy of Collateral.
iA Lender may not take any action in connection with an…1,074 ch
i. A Lender may not take any action in connection with an SBA-guaranteed loan that establishes a preference in favor of the Lender (13 CFR § 120.411). The Lender must not have a 7(a) loan in a “piggyback” structure. a) Piggyback financing occurs when one or more lenders provide more than one loan to a single Borrower at or about the same time, financing the same or similar purpose, and where the SBA-guaranteed loan is secured with a junior lien position or no lien position on the collateral securing the non-guaranteed loan(s). SBA considers “at or about the same time” to mean loans approved within 90 days of each other. b) SBA does not consider a scenario where both the SBA-guaranteed loan and the non-SBA guaranteed loan are for working capital and the non- SBA guaranteed loan is secured only by working/trading assets to be a piggyback structure. c) SBA does not consider a shared lien position with the lender (pari passu) to be a piggyback structure when the maturity of the non-SBA guaranteed loan is not shorter than the maturity of the SBA-guaranteed loan.
iiA loan request is not to be declined solely on the basis of…389 ch
ii. A loan request is not to be declined solely on the basis of inadequate collateral. In fact, one of the primary reasons Lenders use the SBA- guaranteed program is for those Applicants that demonstrate repayment ability but lack adequate collateral to repay the loan in full in the event of default. However, SBA does not permit its guaranty to be a substitute for available collateral.
iiiWhen assessing the adequacy of collateral, the Lender must…4,749 ch
iii. When assessing the adequacy of collateral, the Lender must…1,283 ch
iii. When assessing the adequacy of collateral, the Lender must consider the impact that covenants and other restrictions recorded against the collateral may have on its value and marketability. The Lender must document this analysis in the file. Examples of items to review include: a) Deed restrictions, covenants, easement provisions, reversionary interests, subordinations, leases and options, and other provisions that restrict the use of the property for the benefit of a third party (note: certain deed restrictions pertaining to the use of the property, which are intended to protect the health and safety of occupants, may be acceptable, e.g., deed restrictions based upon environmental concerns including restrictions on residential use, use as a day care center for children or seniors, use as a school, or use as a hospital); and b) Engineering Controls that require the Applicant or subsequent owners to install costly devices or structures such as extraction wells or subsurface barrier walls prior to constructing a building, remodeling, or otherwise improving the property. c) Environmental Indemnification Provisions that run with the land are not eligible and must be removed or waived as to the Federal Government. Collateral Requirements for Standard 7(a) Loans.
iSBA considers a loan as “fully secured” if the Lender has taken…2,212 ch
i. SBA considers a loan as “fully secured” if the Lender has taken security interests in all available fixed assets of the Applicant with a combined Net Book Value as adjusted below, up to the loan amount. For 7(a) loans, the term “fixed assets” means real estate, including land and structures, machinery and equipment owned by the business or an EPC. SBA does not require the Lender to place a lien on vehicles unless the value of the vehicle (as reported by any of the following: an independent third party (e.g., orderly liquidation value from an appraisal, independent vehicle valuation company or website), or the purchase price allocable to such a vehicle if the 7(a) loan is being used to purchase the vehicle) is greater than $10,000 at the time the SBA loan number is assigned by SBA. For the purpose of determining whether the Lender must place a lien on a vehicle, Lender must document the source and dollar amount of the vehicle valuation in the credit memorandum. a) New machinery and equipment (excluding furniture and fixtures) may be valued at no more than 75% of price minus any prior liens for the calculation of “fully secured”; b) Used or existing machinery and equipment (excluding furniture & fixtures) may be valued at no more than 50% of Net Book Value or 80% with an Orderly Liquidation Appraisal minus any prior liens for the calculation of “fully secured”; c) Improved real estate can be valued at no more than 85% and unimproved real estate can be valued at 50% of the market value for the calculation of “fully secured” and the value must be determined in accordance with the requirements set forth in Paragraph C.3.d, Real Estate Appraisal and Business Valuation Requirements below; and d) Furniture and Fixtures may be valued at no more than 10% of Net Book Value or appraised value. e) SBA leaves it up to the discretion of the Lender to decide whether to take a security interest in trading assets (e.g., accounts receivable or inventory) or to leave those assets available to pledge as collateral for a line of credit. If the Lender decides to take a security interest in trading assets, no more than 10% of current book value may be used for the calculation of fully secured.
iiCollateral shortfall: If there is a collateral shortfall (not…782 ch
ii. Collateral shortfall: If there is a collateral shortfall (not “fully secured”) on the SBA-guaranteed loan the Lender: a) Must take available equity in the personal real estate (residential and investment property including other commercial real estate regardless of whether the owner is actively running a business at the investment property) that is solely owned by any direct and/or indirect owners of 20% or more of the Applicant and guarantors except Supplemental Guarantors. Liens on personal real estate may be limited to the amount of the collateral shortfall. In addition, liens on personal real estate may be limited to 150% of the equity in the collateral. b) May include trading assets as necessary (using no more than 10% of current book value for the calculation).
iiiSBA does not require a Lender to collateralize a loan with real…472 ch
iii. SBA does not require a Lender to collateralize a loan with real estate (including commercial, residential and investment properties owned by the Applicant or personally by the owners) to meet the “fully secured” definition when the equity in the real estate is less than 25% of the property’s fair market value. The Lender must document in their loan file the source (other than the personal financial statement) for making the determination of less than 25% equity.
ivWhen loan proceeds from a Standard 7(a) Loan will be used to…1,238 ch
iv. When loan proceeds from a Standard 7(a) Loan will be used to acquire, refinance, or improve assets, a first security interest in those assets must be obtained, except for in the following circumstances: a) When loan proceeds will be used to improve assets, a subordinate position is acceptable for the 7(a) loan if the existing debt is ineligible to be refinanced with a 7(a) loan, or if there is existing debt on reasonable terms (e.g., if the Borrower has an existing loan for the purchase of a building and is getting a new 7(a) loan for improvements), in which case the Lender must document this fact in its credit memorandum. b) SBA does not require the Lender to place a lien on vehicles unless the value of the vehicle (as reported by any of the following: an independent third party (e.g., orderly liquidation value from an appraisal, independent vehicle valuation company or website), or the purchase price allocable to such a vehicle if the 7(a) loan is being used to purchase the vehicle) is greater than $10,000 at the time SBA assigns the SBA loan number. To determine whether the Lender must place a lien on a vehicle, Lender must document the source and dollar amount of the vehicle valuation in the credit memorandum.
vAssets owned by an owner of the Applicant and Spouse: a) When an…666 ch
v. Assets owned by an owner of the Applicant and Spouse: a) When an individual alone or together with his or her spouse or minor children owns 20% or more of the Applicant, the Lender must consider taking as collateral a lien on personal real estate (including commercial and investment properties not occupied by the Applicant) that is owned individually by the Applicant owner, or jointly owned by the individual and his or her spouse or minor children. b) Real estate transferred by the owner of the Applicant to the non-owning spouse or minor children within 6 months of the date of the application will not be exempt from consideration as available collateral.
viFor loans that are collateralized by commercial real estate that…1,120 ch
vi. For loans that are collateralized by commercial real estate that was acquired, refinanced, or improved with proceeds of the loan, Lenders must obtain an appraisal that complies with Paragraph C.3.d., Real Estate Appraisal and Business Valuation Requirements, below, and with Section A, Ch. 5, Para. E, Environmental Policies and Procedures. Real Estate Appraisal and Business Valuation Requirements The regulation governing real estate appraisal is set forth at 13 CFR § 120.160(b). i. Commercial Real Estate: a) For all Standard 7(a) loans secured by commercial real property, all Lenders must obtain an appraisal by a State licensed or certified appraiser. Appraisals must be in compliance with the Uniform Standards of Professional Appraisal Practice (USPAP). Additionally, SBA requires that completed appraisals be dated within 12 months of the application for guaranty. For federally-regulated Lenders, no exemption is granted under the Interagency Guidance Appraisal and Evaluation Guidelines dated December 2, 2010, for Transactions Insured or Guaranteed by a U.S. Government Agency. b) The appraiser must be:
SOP 50 10 8 B.Ch1.C.3.i
i) Independent and have no appearance of a conflict of interest (such as a direct or indirect financial or other interest in the property or transaction, independent of the loan production function, and not involved in the approval of the transaction); and ii) Either State-licensed or State-certified, with the following exception: when the commercial property’s estimated value is over $1,000,000, the appraiser must be State-certified. c) In order for the appraiser to identify the scope of work appropriately, the appraisal must identify the Lender as the client and/or an intended user of the appraisal, as those terms are defined in USPAP, except that federally-regulated Lenders may follow their primary regulator’s FIRREA requirements to the extent they permit otherwise. The Lender may not use an appraisal prepared for the seller or the Applicant. The cost may be passed on to the Applicant. d) The appraisal must be an “Appraisal Report” prepared in compliance with USPAP. e) If the loan will be used to finance new construction or the substantial renovation of an existing building, the appraisal must estimate what the market value will be at completion of construction. (“Substantial” means rehabilitation expenses of more than one-third of the purchase price or fair market value at the time of the application.) After construction is completed, Lender must obtain a statement from the appraiser, general contractor, project architect, or construction management firm that the building was built with only minor deviations (if any) from the plans and specifications upon which the original estimate of value was based. If the Lender cannot obtain such a statement, then the Lender may not close the loan without SBA’s prior written permission. f) If the SBA-guaranteed loan was used to cover the construction period, the Lender must notify the appropriate SBA CLSC of any deviation(s) and work with the SBA CLSC to determine an appropriate course of action, including the securing of additional collateral. The Lender’s notification to SBA must provide a sufficient understanding of the reasons for the differences in values between the estimated and actual values as well as a recommendation as to a remedy to offset the difference in values such as additional equity or additional collateral. If additional collateral is being required, the Lender must identify both the fair market and liquidation values of the additional collateral. If the Lender is unable to obtain a statement that the building was built with only minor deviations (if any) from the plans and specifications upon which the original estimate of value was based, but is able to obtain a new appraisal demonstrating that the market value meets or exceeds the original estimate of value, then no additional action on the part of the Lender is necessary. g) If the loan will be used to acquire an existing building that does not require construction, the appraiser should estimate market value on an as-is basis. If the appraiser estimates the value other than on an as-is basis, the narrative must include an explanation of why the as-is basis was not used. h) When valuing the collateral, the Lender must not include the contributory value of any rental income or the value of any intangible assets contained in the appraisal. i) An appraisal may be submitted as part of the loan application to assist with the underwriting or as part of the loan closing. In no case may the Lender rely on an appraisal that was prepared more than 12 months prior to the date of the application. j) If the Lender is going to require the appraisal at closing, the loan application must include an estimate of the value of the real estate and the estimate must be identified in the credit memorandum with the requirement for an appraisal that supports the estimated value at time of closing. k) If at time of closing the appraised value:
SOP 50 10 8 B.Ch1.C.3.i.i
i) Is 90% or more of the estimated value, the Lender may close the loan but must include a written explanation as to why the appraisal is less than the estimated value in the loan file; or ii) Is less than 90% of estimated value, the Lender may not close the loan without SBA’s prior written permission (see exception below for PLP Lenders). The Lender’s justification to SBA must provide a sufficient understanding of the reasons for the differences in values between the estimated and actual values as well as a recommendation as to a remedy to offset the difference in values such as additional equity or additional collateral. If additional collateral is being required, the Lender must identify both the fair market and liquidation values of the additional collateral. iii) Exception for PLP Lenders: PLP Lenders are permitted to close a loan when the appraisal is less than 90% of the estimated value but the Lender must include a written justification as part of its file that may be reviewed by SBA at time of guaranty purchase or when conducting lender oversight activities. The justification must include a thorough analysis by the Lender of the reasons for the appraisal being low and an explanation as to what steps the Lender took to offset the risk to SBA from the low appraisal such as additional equity or additional collateral. ii. Non-commercial real estate or real estate securing a personal guaranty: SBA has no specific appraisal requirements for non-commercial real estate (such as a residence) or real estate (commercial or non-commercial) taken as collateral to secure a personal guaranty. iii. Other Fixed Assets: If the valuation of fixed assets is greater than their Net Book Value, an independent appraisal by a qualified individual must be obtained by the Lender to support the higher valuation. The appraiser must be independent of the loan production function, not involved in the approval of the transaction, and must not have the appearance of a conflict of interest. A valuation of the fixed assets provided as part of a business valuation will not meet these requirements, except as part of a going concern appraisal. iv. Additional Appraisal Requirements for all Changes of Ownership: For businesses that have been transferred within 36 months prior to the date of the loan application, SBA requires: a) An appraisal of the business real estate that meets the appraisal requirements above; and b) Either a “review” of the appraisal by another appraiser selected directly by the Lender or a site visit by a senior member of the Lender’s staff. The Lender must document the file and include the date of the visit and a description of the items reviewed on site. v. Business Valuation Requirements – Change of Ownership: a) Determining the value of a business (not including real estate which is separately valued through a real estate appraisal) is the key component to the analysis of any loan application for a change of ownership. An accurate business valuation is required because the change in ownership will result in new debt unrelated to business operations and potentially the creation of intangible assets. A business valuation assists the buyer in making a determination that the seller’s asking price is supported by an independent Qualified Source (see definition in Appendix 3). b) In order for the individual performing the business valuation to identify the scope of work appropriately, the business valuation must be requested by and prepared for the Lender. The scope of work should identify whether the transaction is an asset purchase or stock purchase and be specific enough for the individual performing the business valuation to know what is included in the sale (including any assumed debt). The business valuation must include the individual’s conclusion of value, the qualifications of the individual performing the business valuation and their signature certifying to the information contained in the business valuation. The Lender may not use a business valuation prepared for the Applicant or the seller. The cost of the business valuation may be passed on to the Applicant. i) Non-Special Purpose Properties: (a) If the amount being financed (including any 7(a), 504, seller, or other financing) minus the appraised value of real estate and/or equipment being financed is $250,000 or less, the Lender may perform its own valuation of the business being sold, unless the Lender’s internal policies and procedures require an independent business valuation from a Qualified Source. (b) If the amount being financed (including any 7(a), 504, seller, or other financing) minus the appraised value of real estate and/or equipment is greater than $250,000 or if there is a close relationship between the buyer and seller (for example, transactions between existing owners or family members), the Lender must obtain an independent business valuation from a Qualified Source. ii) Special Purpose Properties: A “Special Purpose Property” is a limited- market property with a unique physical design, special construction materials, or a layout that restricts its utility to the specific use for which it was built. (a) If the amount being financed (including any 7(a), 504, seller, or other financing) minus the appraised value of real estate and/or equipment being financed is $250,000 or less, the Lender may perform its own valuation of the business being sold, unless the Lender’s internal policies and procedures require an independent business valuation from a Qualified Source. (b) If the amount being financed (including any 7(a), 504, seller, or other financing) minus the appraised value of real estate and/or equipment being financed is over $250,000 or if there is a close relationship between the buyer and seller (for example, transactions between existing owners or family members) and the business operates from a Special Purpose Property, the Lender must obtain an independent business valuation performed by a Certified General Real Property Appraiser. The appraiser must be independent of the loan production function, not involved in the approval of the transaction, and must not have the appearance of a conflict of interest. (c) The business valuation must allocate separate values to the individual components of the transaction including land, building, equipment, and intangible assets. (d) The Certified General Real Property Appraiser must have completed no less than four going concern appraisals of equivalent special use property as the property being appraised, within the last 36 months, as identified in the qualifications portion of the Appraisal Report. (e) Each business valuation assignment under this section must be undertaken with a specific instruction for the Certified General Real Property Appraiser to conduct the appraisal in compliance with current USPAP guidelines. iii) If the application will be submitted to the LGPC, the business valuation must be submitted as part of the loan application. iv) If the application will be submitted under PLP authority, the business valuation may be obtained and reviewed after the issuance of an SBA Loan Number and prior to closing. If the Lender is processing the application under PLP authority and requests the business valuation after issuance of an SBA Loan Number, the credit memorandum must include an estimate of the value of the business. The credit memorandum must be updated after receipt of the business valuation to include a comparison of the loan amount and the business valuation. v) Any amount(s) of the loan proceeds that will be used to facilitate a change of ownership may not exceed the business valuation. vi) Lender Verification of Business valuation Financial Data: Lender must obtain a copy of the financial information relied upon by the individual who performed the business valuation and verify that information against the seller’s IRS transcripts to ensure the accuracy of the information.
Operationalizing SBA SOP 50 10 8, B.Ch1.C.3 — Collateral
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