Most SBA loans require collateral, but the type and amount depend on the specific program
Whether an SBA loan is secured or unsecured depends on which SBA program you use and how much you borrow. A secured loan requires you to pledge assets — usually business equipment, inventory, or real estate — as collateral. An unsecured loan has no collateral requirement. Most SBA loans fall into the secured category, but some smaller loans and certain programs have no collateral requirement at all.
The SBA itself does not make loans directly. Instead, banks and nonbank lenders make the loans and the SBA guarantees a portion of them if you default. That may provide is what allows lenders to offer better terms than they would otherwise. The collateral requirement is set by the lender, not the SBA, though the SBA has guidelines about what lenders can and cannot require.
Key Takeaways
- The SBA 7(a) loan program, the most common type, typically requires collateral but the lender may waive it for loans under $25,000.
- SBA Microloans (up to $50,000) usually have no collateral requirement, though the lender may ask for a personal may provide.
- A personal may provide means you are personally liable if the business cannot repay, even if the loan itself is unsecured.
- The lender decides what collateral to accept; common options include business equipment, accounts receivable, inventory, and a lien on business or personal real estate.
- Collateral requirements vary by lender and loan size, so asking about collateral upfront can help you decide which lender to approach.
How the SBA 7(a) loan handles collateral
The SBA 7(a) program is the largest and most widely used SBA loan program. For loans of $25,000 or less, many lenders will not require collateral at all, though they may still ask for a personal may provide. For loans above $25,000, most lenders will require collateral, but the SBA does not set a minimum collateral-to-loan ratio. This means the lender has discretion: some may ask for collateral equal to 100 percent of the loan amount, while others may accept less.
The lender will typically accept business assets as collateral: equipment, vehicles, inventory, accounts receivable, or a lien against business real estate. If the business does not have enough assets, the lender may ask for a personal may provide backed by your home or other personal property. This is common even when the loan itself is technically unsecured, because the lender wants a way to recover money if the business fails.
Microloans and other smaller programs with no collateral requirement
The SBA Microloan program lends up to $50,000 through nonprofit intermediaries. These loans typically have no collateral requirement. However, the lender will almost always require a personal may provide, meaning you are personally responsible for repaying the loan even if the business cannot. A personal may provide is not the same as collateral — it does not require you to pledge specific assets upfront — but it does mean your personal credit and assets are at risk if you default.
Some lenders also offer SBA Express loans, a faster version of the 7(a) program, and may waive collateral for smaller amounts. The Community Advantage program, designed for underserved borrowers, also tends to have lower or no collateral requirements. The specific terms depend on the lender, so it is worth asking about collateral requirements before you submit paperwork.
What happens if you cannot provide collateral
If you do not have collateral to pledge, you have several options. First, you can look for a lender that does not require it — Microloans and some 7(a) lenders will work with you on smaller loans. Second, you can ask whether the lender will accept a personal may provide instead of collateral; this is common and does not require you to pledge specific assets. Third, you can work to build collateral: if you own a home or have business equipment, you may be able to use that.
Some lenders will also consider a cash injection from you as a substitute for collateral. If you put your own money into the business first, the lender sees less risk and may be willing to lend without requiring collateral on top of that. This is especially true for startup loans, where the business has no assets yet.
Personal guarantees versus collateral
A personal may provide is a promise that you will repay the loan personally if the business cannot. It is not collateral, because you are not pledging a specific asset. Instead, you are making yourself personally liable. If the business defaults, the lender can pursue your personal assets — bank accounts, a home, a car — to recover the debt.
Most SBA loans, even unsecured ones, require a personal may provide from the owner or owners. This is standard practice and does not mean the loan is secured. However, it does mean your personal credit and finances are at stake. If you are a co-owner, the lender may ask each owner to sign the may provide, making each of you fully liable for the entire loan amount.
How collateral is valued and what happens if you default
When you pledge collateral, the lender will have it appraised or valued to determine how much it is worth. The lender will then record a lien against that asset, which means they have a legal claim to it if you do not repay. If you default on the loan, the lender can seize the collateral and sell it to recover what you owe.
If the collateral does not sell for enough to cover the full debt, the lender can still pursue you for the remaining balance, especially if you also signed a personal may provide. This is called a deficiency judgment. For this reason, understanding what you are pledging and its actual value is important before you sign the loan agreement.
Questions to ask your lender about collateral
Before you commit to a loan, ask the lender directly: Does this loan require collateral? If so, what assets will you accept? What is the minimum collateral-to-loan ratio? Will you waive collateral for a personal may provide instead? What happens to the collateral if I repay the loan on time?
Also ask whether the lender will accept a blanket lien (a claim against all business assets) or whether they want specific collateral. A blanket lien is simpler but gives the lender a claim to everything you own in the business. Specific collateral is more limited but also more predictable. Getting these details in writing before you apply will help you compare offers from different lenders and make a decision that fits your situation.
Frequently Asked Questions
Can I get an SBA loan without a personal may provide?
Rarely. Most SBA lenders require a personal may provide from the owner or owners, even for unsecured loans. Some lenders may waive it for very small loans or in unusual circumstances, but you should assume it will be required and ask specifically if the lender will consider an exception.
What if I own a home — can I use it as collateral?
Yes. Many lenders will accept a lien against your home as collateral for an SBA loan. This is called a second mortgage if you already have a first mortgage. Be aware that if you default, the lender can foreclose on your home, so this is a significant risk. Make sure you understand the terms before you pledge your home.
Does the SBA set collateral requirements?
No. The SBA provides guidelines but does not set specific collateral requirements. The lender decides what collateral to require and what to accept. This is why collateral terms vary widely between lenders, even for the same SBA program.
What if the collateral I have is worth less than the loan amount?
The lender may still accept it, especially if you also sign a personal may provide. However, if you default and the collateral sells for less than you owe, the lender can pursue you for the difference. This is why it is important to understand the full risk before you borrow.
Can I get my collateral back after I repay the loan?
Yes. Once you repay the loan in full, the lender will release the lien and you will have full ownership of the collateral again. The lender should provide a written release of lien, which you should keep for your records.