SBA SOP 50 10 8, B.Ch2.C.3 — Collateral
Verbatim text of SBA SOP 50 10 8 section B.Ch2.C.3 (Collateral), effective 2025-06-01. 9 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 SBA's own document page serves superseded editions, and the SOP is further amended by policy notices — read this with the notices that touch it.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.Ch2.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.Ch2.C.3
3. Collateral Collateral for 7(a) Small Loans i. See Section A, Ch. 5, Para. A. for guaranty requirements. ii. For loans of $50,000 or less, Lenders are not required to take collateral. iii. When loan proceeds from a 7(a) Small Loan will be used to refinance existing debt, 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 7(a) 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.
SOP 50 10 8 B.Ch2.C.3.iv
iv. Adequacy of Collateral. a) 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. b) 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:
SOP 50 10 8 B.Ch2.C.3.iv.i
i) 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 ii) 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. iii) Environmental Indemnification provisions that run with the land are not eligible and need to be removed or waived as to the Federal Government. v. For loans over $50,000, 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 set forth in this section. However, at a minimum: a) Lender must take a first lien on assets financed with loan proceeds, with the following exceptions: i) 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; ii) 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. iii) 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. b) When 50% or more of loan proceeds will be used for working capital, Lender must take a lien on all of the Applicant business’s fixed assts, including real estate, up to the point that the loan is fully secured. SBA considers a loan as “fully secured” if the Lender has taken security interests in all available fixed assets of the Applicant business 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. Lender is not required to take a lien against the Applicant business’s real estate when the equity is less than 25% of the fair market value. The Lender may limit the lien taken against real estate to the amount necessary to ensure the loan is fully secured;
SOP 50 10 8 B.Ch2.C.3.iv.i
i) 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”; ii) 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”; iii) 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.f, Real Estate Appraisal and Business Valuation Requirements below; and iv) Furniture and Fixtures may be valued at no more than 10% of Net Book Value or appraised value. v) 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. c) Other Collateral Lenders May Choose to Take on a 7(a) Small Loan. For 7(a) Small loans, SBA only requires the Lender to take security interests as stated above. However, SBA does not prohibit a Lender from:
SOP 50 10 8 B.Ch2.C.3.iv.i
i) Taking available equity in the personal real estate (residential and investment property) of any owners and guarantors. ii) Including trading assets as necessary. iii) Taking personally-owned investment and/or residential real estate (including commercial, residential and investment properties owned by the Applicant or personally by the owners) as collateral. vi. Adequacy of Collateral: a) 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. b) 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.
SOP 50 10 8 B.Ch2.C.3.iv.i
i) 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. ii) 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. iii) 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. Collateral for SBA Express Loans i. See Section A, Ch. 5, Para. A. for guaranty requirements. ii. 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 set forth in this section. iii. For loans of $50,000 or less, Lenders are not required to take collateral. iv. For loans over $50,000, the Lender must, to the maximum extent practicable, follow the written collateral policies and procedures that it has established and implemented for its similarly-sized, non-SBA guaranteed commercial loans. v. Adequacy of Collateral: a) 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. b) 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.
SOP 50 10 8 B.Ch2.C.3.iv.i
i) 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. ii) 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. iii) 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. 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 7(a) Small and SBA Express loans secured by commercial real property: i) If the loan finances a transaction involving parties with a close relationship (for example, transactions between existing owners or family members), or if SBA or the Lender concludes that an appraisal is necessary to appropriately evaluate creditworthiness, the Lender must obtain an appraisal. 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. ii) If an appraisal is not required under the preceding Paragraph, all Lenders must obtain an appropriate evaluation of the commercial real estate securing the loan that is consistent with safe and sound banking practices. Evaluations are not required to be performed in accordance with USPAP or by State licensed or certified appraisers but should be consistent with the Interagency Guidance Appraisal and Evaluation Guidelines and the Interagency Advisory on the Use of Evaluations in Real Estate-Related Financial Transactions, issued by the Federal Banking Regulators. b) The appraiser must be:
SOP 50 10 8 B.Ch2.C.3.iv.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 obtained 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 Lender’s 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.Ch2.C.3.iv.i
6 sections · 7,237 characters of verbatim text. Open a section to read it, or . Every section below is in the page source whether open or closed.
§i) Is 90% or more of the estimated value, the Lender may close…234 ch
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 the estimated value:
aFor loans processed via non-delegated procedures: The Lender may…560 ch
(a) For loans processed via non-delegated procedures: The Lender may not close the loan without SBA’s prior written permission. 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.
bFor 7(a) Small Loans processed via PLP procedures and for SBA…4,882 ch
(b) For 79 ch
(b) For 7
aSmall Loans processed via PLP procedures and for SBA Express…3,216 ch
(a) Small Loans processed via PLP procedures and for SBA Express Loans: Lenders are permitted to close the loan, 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 Change of Ownership Business Valuation Requirements: 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.
bIf the amount being financed (including any 7(a), 504, seller, or…1,657 ch
(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.
cThe business valuation must allocate separate values to the…165 ch
(c) The business valuation must allocate separate values to the individual components of the transaction including land, building, equipment, and intangible assets.
dThe Certified General Real Property Appraiser must have completed…277 ch
(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.
eEach business valuation assignment under this section must be…1,119 ch
(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) The business valuation may be obtained and reviewed after the issuance of an SBA Loan Number and prior to closing. If the Lender 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. iv) Any amount(s) of the loan proceeds that will be used to facilitate a change of ownership may not exceed the business valuation. v) 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. D. SUBMISSION OF APPLICATION FOR GUARANTY
Operationalizing SBA SOP 50 10 8, B.Ch2.C.3 — Collateral
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