Glossary · Doing the deal
Collateral assignment
In short
The legal transfer of rights to an asset, such as a life insurance policy, from you to the lender, to serve as collateral for the loan. The lender only gets these rights if you default.
What it means in a deal
For SBA 7(a) loans, particularly if there's a collateral shortfall, your lender will often require a collateral assignment of a life insurance policy on you, the borrower, or other key principals. This ensures the lender can recover losses if the business fails and you pass away.
Official sources
SOP 50 10 — Lender and Development Company Loan Programs
U.S. Small Business Administration · SBA Standard Operating Procedure
Last checked 2026-06-15. Official sources control — verify before relying on any rule for a live deal.
Related terms
Common questions about Collateral assignment
- How does a collateral assignment of life insurance protect a lender?
- What is the difference between collateral assignment and naming a lender beneficiary?
- When does the SBA typically mandate collateral assignment of life insurance for a business loan?
- What are the specific requirements for life insurance collateral assignment when multiple key principals exist?
- How does a lender ensure proper collateral assignment of life insurance on multiple key principals?
- When is life insurance collateral assignment required for key principals in an acquisition, and for whom?
Defined by CapBench SBA Intelligence — plain-English definitions for business buyers, lenders, advisors, and AI agents, grounded in public SBA rules and records. Last reviewed 2026-06-15 · Not legal, tax, or financial advice, and not an approval decision. Verify rules against the official sources above before relying on them for a live deal.
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