Business Loans
SBA Loan Collateral Requirements
A Clear Guide to What You Need to Know About SBA Loan Collateral Rules
- Dileep K Nair
- July 9, 2025
Table of Contents
Introduction
When applying for a loan—especially one backed by the Small Business Administration—most business owners are concerned about whether they need to offer collateral. It’s a fair concern. Collateral can be a barrier for some applicants, especially startups or businesses with limited assets.
Understanding the SBA loan collateral requirements can help you prepare your loan application properly, avoid surprises, and increase your chances of approval.
In this guide, we explain in detail how the SBA treats collateral, what assets can be used, when it’s required, and how lenders evaluate it.
The SBA does not always require collateral for every loan. In fact, its goal is to improve access to capital for small businesses. But collateral can still play a critical role in your approval, especially for higher loan amounts or when the lender sees risk.
Let’s break this topic down in simple, clear terms.
✅ What Is Collateral?
Collateral refers to assets pledged by a borrower to secure a loan. If the borrower cannot repay the loan as agreed, the lender has the right to seize and sell the collateral to recover the outstanding amount.
Collateral gives the lender a backup plan. It reduces the financial risk of lending and often helps the borrower receive more favorable loan terms.
Collateral can be:
- Business assets, such as equipment, inventory, or receivables
- Real estate, such as commercial or residential property
- Personal property, like vehicles or savings
- Fixed assets, like furniture or fixtures
- Cash or marketable securities, in some cases
The type and value of collateral depend on the loan amount, the loan program, and the lender’s policies.
🔍 Does the SBA Require Collateral for All Loans?
The short answer is no. The SBA does not require collateral for every loan. But it does have rules based on loan size, loan type, and business risk profile. These rules are applied through the participating lenders who issue and service the loans.
Here’s a breakdown based on loan size:
Loans of $25,000 or Less
SBA lenders are not required to take collateral for loans at or below this amount. The focus here is on creditworthiness, business viability, and ability to repay.
Loans Between $25,000 and $350,000
Lenders are required to take available collateral, but the SBA does not expect them to decline a loan solely due to a lack of collateral.
If you don’t have enough assets, the lender must document that they tried to secure the loan but will still consider approval based on other factors.
Loans Over $350,000
For larger loans, the SBA expects lenders to secure the loan fully, up to the amount of the loan, using available business and personal assets.
If there isn’t enough collateral to fully secure the loan, that doesn’t automatically disqualify you—but the lender must justify the approval and show that the loan still makes sense.
The SBA states that a lack of collateral alone will not result in loan denial, as long as the loan meets all other requirements and repayment ability is strong.
📘 SBA Loan Collateral Requirements by Loan Type
Let’s take a closer look at collateral expectations based on the most common SBA loan programs.
1. SBA 7(a) Loans
Collateral is required for loans above $25,000, especially when the loan exceeds $350,000. Lenders typically look at both business and personal assets.
If you have fixed assets—like machinery, vehicles, or owned property—these will be listed as collateral. If your business lacks sufficient assets, lenders may require a personal guarantee and may also place liens on personal assets such as a home.
However, if no adequate collateral exists, the SBA allows lenders to proceed as long as they document that no further collateral is reasonably available.
2. SBA 504 Loans
These loans are structured to finance real estate or major fixed assets, and the assets being financed usually serve as the collateral. For example, if you’re using a 504 loan to purchase a commercial building, that building becomes the collateral.
There is typically no need for additional collateral beyond the project asset, though lenders may ask for additional guarantees depending on risk.
3. SBA Microloans
Microloans, which are capped at $50,000, are often more flexible. Some microloan lenders require minimal collateral, while others may waive it entirely in favor of a personal guarantee or a strong business plan.
Collateral rules in the Microloan program vary widely because nonprofit intermediary lenders set their own underwriting policies.
You should ask your local lender what their collateral expectations are before applying.
🧾 What Can Be Used as Collateral for an SBA Loan?
When preparing to apply, it helps to know what kinds of assets lenders may accept as collateral. Here are common options:
- Business Equipment
If you own equipment used in production, operations, or logistics, these items can be used as collateral. The lender will assess current market value—not original purchase price.
- Inventory
Retailers or wholesalers may use inventory as collateral, though lenders may apply a discount (known as a “haircut”) to account for depreciation or liquidation risks.
- Accounts Receivable
If your business invoices customers, the value of those accounts receivable can be pledged as collateral. Again, the lender may only accept a portion of the total as collateral value.
- Real Estate
Both commercial and personal real estate may be used. Real estate tends to have high collateral value and may help strengthen your application, especially for larger loans.
- Vehicles
Business-owned vehicles may be accepted, though their value can decline quickly and may not fully secure the loan on their own.
- Fixtures and Furniture
These are accepted in some cases but generally have lower collateral value unless part of a fixed asset project.
- Personal Assets
If business assets are insufficient, lenders may look to personal assets. This includes homes, land, or investment accounts. Lenders often require a personal guarantee for owners with 20% or more ownership in the business.
💡 How Do Lenders Evaluate Collateral?
Lenders typically use loan-to-value (LTV) ratios to assess whether collateral is sufficient. This ratio compares the loan amount to the appraised value of the collateral.
For example:
- A loan of $100,000 secured by equipment worth $80,000 = 80% LTV
- A loan of $250,000 secured by real estate worth $200,000 = also 80% LTV
Each lender has its own acceptable LTV thresholds. Some assets (like real estate) retain value well. Others (like vehicles or equipment) may depreciate quickly, so the LTV accepted may be lower.
Collateral must also be easily transferable, legally owned by the borrower, and free from other liens—or subordinated if there are existing claims.
⚖️ What Happens If I Don’t Have Enough Collateral?
If your business doesn’t have enough collateral to fully secure the loan, that does not automatically disqualify you.
The SBA instructs lenders not to decline loans solely due to collateral shortfalls, especially for 7(a) loans.
Here’s what you can do:
- Offer a personal guarantee
- Show strong cash flow and credit history
- Provide a realistic business planand projections
- Offer to pledge future receivables or contracts
- Work with the lender to find other ways to reduce risk
In some cases, the lender may ask for a smaller loan amount or may offer partial financing based on available security.
📌 Summary of SBA Loan Collateral Requirements
| Loan Type | Collateral Required? | Collateral Examples |
| SBA 7(a) | Yes, if over $25,000; fully secured if > $350,000 | Business assets, real estate, personal guarantee |
| SBA 504 | Yes, asset being financed is used | Real estate, equipment (fixed assets) |
| SBA Microloan | Varies by lender | Inventory, personal assets, business property |
📄 Final Thoughts
Understanding SBA loan collateral requirements is an important part of preparing for funding. While collateral is often requested, it is not always mandatory.
The SBA’s goal is to increase access to capital, and its guidelines are designed to balance risk with opportunity.
If your business has assets, they can strengthen your loan application. But if you don’t, focus on building a strong business case, showing cash flow, and demonstrating commitment.
Many businesses receive SBA loans without full collateral, especially when their application is complete, their plan is realistic, and their repayment ability is clear.
❓ Frequently Asked Questions (FAQs) – SBA Loan Collateral Requirements
The 20% rule refers to the SBA’s requirement that any individual or entity owning 20% or more of a small business must personally guarantee the loan.
This applies to most SBA loan programs, including the 7(a) and 504 loans. A personal guarantee means that if the business is unable to repay the loan, the individual owner is personally responsible for the debt.
This rule is intended to ensure accountability and reduce the lender’s risk. Even if the loan is secured by business assets, personal guarantees are often required as an additional form of security for the lender.
Collateral is often required for SBA loans, but not in every case. For loans under $25,000, lenders are not required to take collateral.
For loans between $25,000 and $350,000, lenders must take available collateral but are not required to decline the loan if the borrower doesn’t have enough.
For loans over $350,000, the SBA expects lenders to fully secure the loan with business and/or personal assets whenever possible.
However, a lack of collateral by itself does not automatically disqualify you. Lenders can approve the loan if all other qualifications are met and repayment ability is strong.
Yes, personal assets can be used as collateral for SBA loans, especially when the business does not have enough assets of its own.
Common personal assets include real estate, vehicles, savings, or investment accounts. Lenders may require liens on these assets as part of the loan agreement, particularly for loans above $350,000.
In most cases, the SBA requires owners with 20% or more ownership to sign a personal guarantee. This allows lenders to pursue personal assets if the business defaults.
It’s important to review these terms carefully and understand your personal obligations.
If you do not have enough collateral to fully secure your SBA loan, that does not automatically mean rejection. For SBA 7(a) loans, lenders are encouraged to approve loans based on overall creditworthiness, even when full collateral is not available.
You may still qualify if you demonstrate strong cash flow, have a solid business plan, and are willing to sign a personal guarantee. In some cases, the lender may reduce the loan amount, request partial collateral, or ask for other risk mitigation measures.
It's helpful to discuss your situation openly with the lender and explore alternative options.
Lenders use a method called loan-to-value (LTV) to determine the acceptable collateral for a loan. They assess the market value of the asset and apply a discount, especially if the asset depreciates quickly.
For example, they may value equipment at 60% of its market value and inventory at 50%. Real estate generally retains higher value and may be accepted closer to its appraised amount.
Lenders also verify that the collateral is owned by the borrower, is not already pledged to another creditor (or has a subordinated lien), and can be sold if needed.
A personal guarantee is not the same as collateral, but it often works alongside it. Collateral is a specific asset pledged to secure the loan, something the lender can seize and sell if the loan is not repaid.
A personal guarantee, on the other hand, is a legal promise from the business owner to repay the loan personally if the business defaults. It may or may not be backed by a specific asset.
The SBA requires personal guarantees from any owner with 20% or more interest in the business, regardless of whether there is enough collateral.
The best collateral for an SBA loan is usually an asset that has high and stable value, is easy to verify, and can be liquidated if necessary.
Real estate, especially commercial or residential property owned free and clear, is often considered the most favorable type of collateral. Equipment and machinery also carry strong value, particularly if they are in good condition and essential to the business.
Inventory, vehicles, and accounts receivable are accepted too, but their values are often discounted. The goal is to match the loan size with the available collateral while minimizing risk for the lender.
While future revenue or signed contracts are not traditional forms of collateral, some SBA lenders may consider projected income or confirmed contracts as part of your overall loan assessment.
This is more common in industries where client contracts or purchase orders represent predictable cash flow.
However, these are not treated as tangible collateral in the same way as equipment or property. Instead, they may support your case for repayment ability.
If you rely on this kind of support, be prepared to explain the reliability of your income sources and provide documentation to back your claims.
