Best Practices: Updated Collateral Rules for Standard 7(a) Loans in 50 10 8

SOP 50 10 8, which became effective on June 1, 2025, restored some of the prudent practices standards from prior SOPs as well as added some needed, clear minimum collateral requirements.  For SBA Lenders, the result is a more clearly defined framework for securing Standard 7(a) loans. While many concepts from prior to the SOP 50 10 7.1 remain, the new SOP provides additional guidance on key areas: adequacy of collateral, liens on motor vehicles and collateral shortfalls.

Covenants and Use Restrictions

A familiar concept making its way back to SOP 50 10 8 is the need for SBA Lenders to consider the impact covenants and other restrictions have on the value and marketability of collateral. Now SBA Lenders have additional guidance on assessing the adequacy of collateral, including examples of the types of documentation that SBA Lenders should review when taking a lien on real estate.  These include: deed restrictions, easement provisions, subordinations and lease options, and other documents that may restrict the use of the property for the benefit of a third party. It’s important to note that not every use restriction or covenant, will reduce the collateral’s value; it depends on its scope and purpose.  For instance, “certain deed restrictions pertaining to the use of the property, which are intended to protect the health and safety of occupants, may be acceptable, e.g., deed restrictions based upon environmental concerns including restrictions on residential use, use as a day care center for children or seniors, use as a school, or use as a hospital.” SOP 50 10 8, page 136.

Motor Vehicles

Instances when an SBA Lender is required to take a lien on motor vehicles have been clarified in the latest SOP. As of June 1, 2025, the SBA does not require SBA Lenders to lien vehicles that already have a lien, unless the value of the vehicle (as reported by any of the following: an independent third party (e.g., orderly liquidation value from an appraisal, independent vehicle valuation company or website), or the purchase price allocable to such a vehicle if the 7(a) loan is being used to purchase the vehicle) is greater than $20,000 at the time the SBA loan number is assigned by SBA. In determining whether to lien a motor vehicle, SBA Lenders must document the lien status and valuation source in the credit memo.

Collateral Shortfalls

For loans that are not fully secured with business assets of the Applicant, SOP 50 10 8 continues existing policy of requiring SBA Lenders to take a lien on all available equity in personal real estate.  Personal real estate includes residential, and investment properties, including commercial real estate. Real estate that is transferred from the owner to the applicant’s spouse or children within six months of the loan application can be considered for collateral.  Properties without significant equity, i.e., less than 25% of its fair market value, are not required to be taken as collateral, but the SBA Lender must substantiate that equity calculation with sources beyond the personal financial statement.

In short, SOP 50 10 8 marks a return to a more traditional and cautious SBA approach to collateral. The focus is on taking all available equity when needed, and meticulous documentation to support every collateral decision. For SBA Lenders, this means fewer gray areas and more predictability. For more information regarding collateral requirements and other SBA guaranteed lending, contact the attorneys at Starfield & Smith at info@starfieldsmith.com or 215.542.7070.