Collateral requirements

The SBA states: 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 small business applicants that demonstrate repayment ability but lack adequate collateral to fully repay the loan if the loan defaults.

The SBA requires that SBA 7a loans be collateralized to the fullest extent possible, up to the amount of the loan; first with the available assets of the business, then, if not fully secured, with the available personal assets of the principal owners of the business.  So the bank will secure your SBA 7a loan first by placing a lien on all the business assets and then by taking your available personal assets as collateral for the loan.

The SBA considers a loan as “fully secured” if the lender has taken security interests in all available assets with a combined "liquidation value” up to the loan amount.  Business operating and trading assets are excluded from the calculation of “fully secured” (even when liens are taken on these assets) because these assets typically have negligible value in a liquidation.

Liquidation rates, like underwriting standards, vary by bank; sample liquidation rates shown below.

Commercial Real Estate -- 75%
Single Family Residence -- 80%
Machinery and Equipment -- 50%
Inventory -- 0%
Accounts Receivable -- 0%
Furniture,Fixtures and Equipment -- 20%
Leasehold Improvements -- 5%