Glossary · The loan itself
Life insurance requirement
In short
The SBA's mandate that borrowers with an ownership stake of 20% or more obtain life insurance to cover the outstanding loan balance. This protects the lender if a key principal dies.
What it means in a deal
If you're a Key Principal with 20% or more ownership, the SBA requires you to obtain life insurance, with the lender as the beneficiary. The policy must cover at least the SBA portion of the loan or your pro-rata share. This is a condition precedent to closing and must be assigned to the lender.
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 Life insurance requirement
- Is a decreasing term life insurance policy acceptable for the SBA's life insurance requirement on a 7(a) loan?
- Is "insurable interest" always a legal requirement for obtaining business life insurance?
- Can a borrower's existing personal life insurance policy be used to satisfy the SBA's life insurance requirement for a 7(a) loan?
- What is the requirement for a lender to ensure proper maintenance of life insurance collateral on key principals?
- Can a term life insurance policy be used for the collateral assignment requirement on an SBA 7(a) loan?
- Under what circumstances can a lender waive the life insurance requirement for a 7(a) loan on a key principal?
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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