Providing SBA loans to your customers is a great way to build relationships with your small business clients while mitigating risk to your bank or credit union. Often, much of the risk is mitigated by assuming a lien position on key collateral, namely business collateral. Though in some cases personal collateral can be offered or even required by the SBA to secure a loan. Because the lender is working in tandem with the SBA, we find they are often concerned about their lien position on an SBA loan.
In both the 504 and 7(a) loan programs, the lender maintains the first lien position on the loan. In the 504 program, the SBA takes the second lien position. In the 7(a) program, the SBA is only providing a guaranty. Actions the bank can or cannot take are outlined in the 7(a) Servicing and Liquidation matrix.
As mentioned earlier, the SBA generally will only require business collateral for a loan. However, in instances where the collateral is not sufficient, they may require personal collateral such as real estate or life insurance policies. Your Lender Service Provider can help you identify collateral needs and answer any additional questions you may have about collateral assignment and liens. You can also contact us directly to help answer your questions.
