SBA Loan Collateral
To the extent that worthwhile assets are available, adequate collateral is required as security on all SBA loans. However, SBA will generally not decline a loan where inadequacy of collateral is the only unfavorable factor.
Collateral is an additional form of security to show a lender that you have a second source of loan repayment. Assets such as equipment, buildings, accounts receivable, and in some cases, inventory, are considered possible sources of repayment if they are sold by the bank for cash. Collateral can consist of assets that are usable in the business as well as personal assets that remain outside the business. This collateral table [link to collateral table in Understanding the Basics/Collateral) shows how different forms of collateral are valued by a typical lender and SBA.
Borrowers can assume that all assets financed with borrowed funds will collateralize the loan. Depending on how much equity was contributed toward the acquisition of these assets, the lender is likely to require other business assets as collateral.
For all SBA loans, personal guaranties are required of every owner of 20 percent or more of the business, plus other individuals who hold key management positions. Whether a guaranty will be secured by personal assets is based on the value of the assets already pledged and the value of the assets personally owned compared to the amount borrowed.
Certified appraisals are required for loans greater than $250,000 secured by commercial real estate. SBA may require professional appraisals of both business and personal assets, plus any necessary survey and/or feasibility study. When real estate is being used as collateral, banks and other regulated lenders are required by law to obtain third-party valuation on transactions of $50,000 or more.
Owner-occupied residences generally become collateral when:
Collateral is an additional form of security to show a lender that you have a second source of loan repayment. Assets such as equipment, buildings, accounts receivable, and in some cases, inventory, are considered possible sources of repayment if they are sold by the bank for cash. Collateral can consist of assets that are usable in the business as well as personal assets that remain outside the business. This collateral table [link to collateral table in Understanding the Basics/Collateral) shows how different forms of collateral are valued by a typical lender and SBA.
Borrowers can assume that all assets financed with borrowed funds will collateralize the loan. Depending on how much equity was contributed toward the acquisition of these assets, the lender is likely to require other business assets as collateral.
For all SBA loans, personal guaranties are required of every owner of 20 percent or more of the business, plus other individuals who hold key management positions. Whether a guaranty will be secured by personal assets is based on the value of the assets already pledged and the value of the assets personally owned compared to the amount borrowed.
Certified appraisals are required for loans greater than $250,000 secured by commercial real estate. SBA may require professional appraisals of both business and personal assets, plus any necessary survey and/or feasibility study. When real estate is being used as collateral, banks and other regulated lenders are required by law to obtain third-party valuation on transactions of $50,000 or more.
Owner-occupied residences generally become collateral when:
- The lender requires the residence as collateral;
- The equity in the residence is substantial and other credit factors are weak;
- Such collateral is necessary to assure that the principal(s) remain committed to the success of the venture for which the loan is being made;
- The applicant operates the business out of the residence or other buildings located on the same parcel of land.