"Can you send a mortgage statement for your home?" It's a business loan, so why is the bank asking? Because underwriting counted $205,000 of your $430,000 in business assets, and on a $480,000 Standard 7(a) loan the house is where they look to cover the $275,000 gap.
This is general information, not legal or financial advice. Confirm every number against the current SOP and your lender before you sign anything.
The one tip
Run SBA's collateral haircuts on your own assets before you pick a loan size. Under SOP 50 10 8.1, a Standard 7(a) loan must be "fully secured" as far as available fixed assets allow, and Appendix 19 tells the lender exactly how much each asset counts for:
- New machinery and equipment: up to 75% of price, minus prior liens
- Used equipment: up to 50% of net book value (80% with an orderly liquidation appraisal)
- Improved real estate: up to 85% of market value. Raw land: 50%
- Furniture and fixtures: up to 10% of book or appraised value
- Receivables and inventory, if the lender takes them: up to 10% of current book value
When those discounted values come up short, the lender must take available equity in personal real estate. Every owner of 20% or more has to personally guarantee the loan, and their home and investment property are what the lender looks at next.
Here is the myth-bust. SBA says a loan request must not be declined solely because collateral is inadequate. A thin collateral file does not kill a deal with strong cash flow. It just changes what you pledge.
Worked example
- Loan request: $480,000 Standard 7(a), so the 7(a) Small rules do not apply
- New equipment bought with the loan: $200,000 price × 75% = $150,000
- Used equipment you already own: $80,000 book × 50% = $40,000
- Furniture and fixtures: $30,000 book × 10% = $3,000
- Receivables and inventory: $120,000 book × 10% = $12,000
- Book and price total: $430,000
- Discounted collateral: $205,000
- Shortfall: $480,000 − $205,000 = $275,000
Now the house. Market value $450,000, mortgage $300,000, so equity is $150,000, or 33% of value. That clears the 25% line, so the lender has to take a lien. SBA lets that lien be capped at the shortfall or at 150% of your equity. Here, 150% of $150,000 is $225,000.
Same house with a $360,000 mortgage: equity is $90,000, only 20% of value. Under 25%, SBA does not require the lien. The lender has to prove that equity number with something other than your personal financial statement or the tax assessment.
One more cost of a shortfall. If the business depends on one owner (a sole proprietor or single-member LLC, for example), a not-fully-secured Standard 7(a) requires life insurance in the amount of the shortfall. That is a $275,000 policy assigned to the lender, with premiums on you.
Do this week
- List every fixed asset with its book value or price. Apply the haircuts above and total the discounted number.
- Subtract it from your loan request. That number is your shortfall, and it is what the lender will try to cover.
- Get a real equity number on any property you own: payoff letter plus a recent market value. Divide equity by value. Under 25% changes the answer.
- Price a term life policy for the shortfall amount now, so it does not hold up closing.
- If the house is a hard no, test a smaller loan. A 7(a) Small at or under $350,000 does not make SBA require personal real estate (buying a business is the exception, since Appendix 15 still applies), and 7(a) Small loans of $50,000 or less need no collateral at all.
- Do not move the house into a spouse's name to dodge this. Transfers to a non-owning spouse or minor children within 6 months of applying still count.
Lenders can take more collateral than SBA's minimum as their own overlay. Ask which lien is SBA's rule and which is the bank's policy.
Sources: SBA SOP 50 10 8.1 (Appendix 19 — collateral valuation limits, personal real estate 25% equity rule, 150% lien cap, Standard 7(a) shortfall rule, 7(a) Small rules; Section A, Ch. 5 — life insurance for not fully secured loans); SBA Information Notice 5000-880695 (SOP 50 10 8.1 effective October 1, 2026); 13 CFR 120.160 (loan conditions).
Verified against SOP 50 10 8.1 text: October 5, 2026.