SBA SOP 50 10 8.1, A.Ch5.C.4 — Life Insurance

SOP 50 10 8.1 A.Ch5.C.4

Effective 2026-10-01 · publisher's stamp for this provision

4. Life Insurance a. If the SBA Lender determines that the principal is uninsurable, the SBA Lender must obtain written documentation from a licensed insurer of the same. b. For each policy required under this Paragraph, SBA Lenders must obtain a collateral assignment identifying the 7(a) Lender (for 7(a)), or the CDC/SBA (for 504), as assignee that is acknowledged by the Home Office of the Insurer. SBA Lenders must ensure that the Applicant/Borrower pays the premiums on the policy (13 CFR § 120.970(c)). c. SBA Lenders may accept the pledge of an existing life insurance policy. Credit life insurance or whole life insurance should not be required. d. 7(a) Loans i. For Standard 7(a), EWCP, CAPLines, International Trade loans and pilot programs (unless specified otherwise in the pilot program guide), 7(a) Lenders may follow their internal policy for similarly-sized non-SBA guaranteed commercial loans. If the loan is not fully secured, life insurance is required in the amount of the collateral shortfall for the principals of sole proprietorships, single member LLCs, or for businesses otherwise dependent on one owner’s active participation. ii. For 7(a) Small Loans, SBA Express and Export Express loans, SBA Lenders may follow their internal written policy for their similarly-sized, non-SBA guaranteed commercial loans. e. 504 Loans CDCs must assess whether the viability of the business is tied to an individual or individuals. Life insurance is required for the principals of sole proprietorships, single member LLCs, or for businesses otherwise dependent on one owner’s active participation when the SBA Loan is not fully collateralized. i. If the CDC determines the principal is uninsurable, the CDC must obtain written documentation from a licensed insurer of the same. ii. For each policy required under this Paragraph, CDCs must obtain a collateral assignment identifying the CDC/SBA as assignee that is acknowledged by the Home Office of the Insurer. CDCs must ensure that the Applicant/Borrower pays the premiums on the policy (13 CFR § 120.970(c)). iii. CDC may accept the pledge of an existing life insurance policy. Credit life insurance or whole life insurance should not be required. iv. When required, the minimum term of life insurance is: a) 10 years for a 10 year debenture. b) 20 years for a 20 or 25 year debenture. v. For the purpose of life insurance calculation, the loan is considered fully collateralized when the value of the discounted collateral is equal to or greater than the net debenture amount. When the loan is not fully collateralized, the amount of life insurance required is equal to the difference between the net debenture amount and the value of the discounted collateral. vi. For life insurance only, the calculation of discounted collateral is as follows: a) Improved real estate at 85% of fair market value determined in accordance with the appraisal requirements in Section C, Ch. 1, Para. E.2.b., Appraisals. b) New machinery and equipment (excluding furniture and fixtures) at 75% of price minus any prior liens. c) Used or existing machinery and equipment (excluding furniture and fixtures) at a maximum of 50% of Net Book Value or 80% with an Orderly Liquidation Appraisal minus any prior liens.

Source: SBA SOP 50 10 8.1, A.Ch5.C.4 — Life Insurance · source URL · snapshot 0fb0c4692cf52938