Collaterals for SBA Financing

For SBA 7(a) loans, many lenders will take additional collaterals if they are available when the loan is not considered fully secured. SBA has their own maximum valuation factors used on assets and lenders may decrease this % based on their own credit policy. Below are SBA’s valuation factors;

· New machinery and equipment – 75% of price

· Used machinery and equipment – 50% of net book value or 80% (orderly liquidation appraisal)

· Improved real estate – 85% of market value

· Unimproved real estate – 50% of market value

· Furniture & Fixtures – 10% of net book value or appraised value

The SBA’s Policy does state that the lender must take available equity in the personal real estate (residential and investment property) of any owners of 20% or more of the applicant and guarantors. SBA “does not” require a lender to collateralize the loan with the personal real estate if the equity is less than 25% of the property’s fair market value. However, lenders have the ability to request the real estate to be pledged even if there is less than 25% equity in the property.

All this information can be found in the SBA SOP 50 10 6 which came out on October 1, 2020.

Team members at Blue Water Capital Advisors have significant knowledge of SBA’s policies and are always up-to-date with any changes. If you have questions regarding any SBA eligibility topics, feel free to reach out to us. Don’t forget to subscribe to our newsletter.