SBA Tip # 6


The SBA lender “MUST” secure all available collateral up to fully secured.


By Stephen Mariani


Actual SOP writing prior to January, 2014. This typically included all properties own by the borrower, all stocks and bonds along with life insurance cash values AND any additional cash accounts that are not IRA or otherwise protected accounts. As you can imagine we see this as a cause for much heartburn amongst our higher net worth buyers and has sometimes stopped many an acquisition from happening. 


So what’s changed and how does it affect us today? 


The SBA SOP new wording now requires all of a borrower’s interest in real property but does NOT specify all available.


“For loans in excess of $350,000, SBA requires that the lender collateralize the loan to the maximum extent possible up to the loan amount. If fixed assets do not fully secure the loan, the lender must take available equity in the personal real estate of the principals as collateral.”



Now the new question becomes how the lender interprets this new writing as it does “Exclude” cash accounts.


 Here is what we’ve been able to determine regarding the above and lender interpretation


After beginning our quest with more than six larger, direct SBA lenders and asking the question, will you secure a buyer’s cash accounts? The overwhelming response has been “One a case by case basis”. Well, that puts an end to the grey area and is clear as mud. So now we have been monitoring more than 12 loans submitted to different lenders and can tell you first hand that most of the larger lenders will not secure cash accounts for a few various reasons. First, the hot topic over the last 3 years has been “post closing liquidity” which translates into “don’t leave the borrower broke” in everyday terms. So we are seeing most lenders documenting their files citing this as a reason for not taking cash accounts but still putting a memo in the file describing why they didn’t. Overall we believe once these lenders become reasonable assured by SBA that this leaving of accounts will not cause their loan guarantees to be in jeopardy, more lenders will do it. Here is really what matters to you, me and potential buyers of larger businesses. With our higher net worth clientele we find one of the initial deal killers is when they understand all their liquid cash accounts will be collateralizing the loan, something they are never prepared for and many times unwilling to even consider. In 2014 we can now explore options with the lenders right up front and make them commit to leaving those accounts out use as collateral, a great alternative. We must still address the personal liquidity rule with them to be sure they are eligible for SBA financing, but that is a much smaller concern than locking their accounts up indefinitely. A big win for big business and higher net worth buyers. is always available for specific questions regarding this or other SBA rules.