Glossary · The loan itself
Under-collateralized loan
In short
This is a loan where the value of the assets pledged as collateral is less than the loan amount. The SBA will still guarantee these loans if the business's cash flow is strong enough to cover debt payments.
What it means in a deal
Your 7(a) loan might be under-collateralized, especially for service businesses with few tangible assets. The SBA requires lenders to take all available collateral, but the primary repayment source is always the business's cash flow. Don't be surprised if your personal assets are also required as collateral.
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 loan
- What specific collateral must be taken when a 7(a) loan is under-collateralized by business assets, even with a blanket lien?
- Under what specific conditions does the SBA impose a prepayment penalty on 7(a) loans?
- How does the upfront 7(a) guaranty fee calculation differ for loans under $500,000 versus those over $1,000,000 for FY2026?
- Can I get a very small loan, like under $50,000, with SBA 7(a)?
- What specific financial metrics are evaluated under 'prudent lending standards' for 7(a) loan approval?
- Can an SBA 7(a) loan be used to buy a commercial building currently under construction?
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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