Term Life Insurance as Collateral for SBA 7(a) Loan

searcher profile

November 02, 2023

by a searcher from University of California, Los Angeles in Orange County, CA, USA

Let's say you apply for an SBA 7(a) loan in the amount of $2M, but you can only personally guarantee up to $500k. Are you able to bridge the gap--in this case $1.5M--with a term life insurance policy? If so, does the policy term length need to match the loan term length (either 5 or 10 years) or would it need to be longer?

If anyone here has done this, please feel free to share your experience and/or advice.

0
5
103
Replies
5
commentor profile
Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
Interesting question. I am not sure what you mean by you can only personally guarantee $500,000 of the loan. Are you stating that you only have assets that would support $500,000 of the loan? What the SBA requires is a unlimited personal guarantee from any owners who have a 20% or greater ownership interest in the business. Whether you have assets to support the full loan amount or not does not matter, they still require you to guarantee the full loan amount. We get deals done all the time for buyers who do not have anywhere near the assets to cover the full loan amount. So not having sufficient assets to support the loan is not an issue.

The SBA already requires a term life insurance policy on SBA loans. The amount of that policy must match the amount of the loan not fully secured by hard collateral according to the SBA calculations. This term life insurance policy is required on top of your personal guarantee. So if the loan is backed by $500,000 of hard business assets and $1.5 million is deemed under-secured (goodwill value as an example) then you would b required to have a term life insurance policy that matches the term of the SBA loan for $1.5 million.

Hopefully this all makes sense. If you would like to discuss further you can reach me here or directly at redacted Good luck.
commentor profile
Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
Sorry for my delayed response. Yes, you can use multiple insurance policies. If you need some good agents that specialize in life insurance and do it for SBA loans, I am happy to get you some contacts. Good luck.
commentor profile
+3 more replies.
Join the discussion