Glossary · The loan itself
Under-Collateralized
In short
This describes a loan where the value of the assets pledged as security is less than the loan amount. Most SBA 7(a) loans are under-collateralized by design, focusing on cash flow.
What it means in a deal
Don't be surprised if your SBA 7(a) loan is under-collateralized; it's common for business acquisition loans. The SBA's guaranty makes up for this collateral shortfall. While your lender will still take all available business and personal collateral, the primary focus is on the business's ability to generate cash flow.
Official sources
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
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 Under-Collateralized
- What specific collateral must be taken when a 7(a) loan is under-collateralized by business assets, even with a blanket lien?
- Can a partner buyout be done with zero money down under the SBA?
- Under what conditions can a seller note on full standby be repaid early?
- How does the SBA determine affiliation for businesses operating under a license agreement?
- When does identity of interest trigger affiliation for size determination under SBA rules?
- How does the SBA define an "associate" for affiliation purposes under 13 CFR 121?
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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