Reviewing Collateral Requirements | SmartBiz University


Collateral (n.): something pledged as security for repayment of a loan, to be forfeited in the event of a default.


When you’re working on your SBA loan application, you’ll find that lenders require collateral as your contribution to back the loan, on top of the SBA’s partial guarantee.

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Most banks expect some form of collateral from the small business they’re evaluating. With SmartBiz Loan’s bank partners, this requirement depends on the desired loan amount. For working capital or debt refinance loans from $25,000 to $350,000 through SmartBiz, a lien on all available business assets is required as collateral up to the loan amount. This includes assets owned in the business name, an eligible passive company’s (EPC) name, and the guarantor’s name.

In terms of the types of acceptable assets, these can include inventory, a personal possession, accounts receivable, equipment, real estate (including land and structures), machinery, and general intangibles that are not already held by another lender.

If you apply for an SBA 7(a) commercial real estate loan through SmartBiz for $500,000 or more, the property you are refinancing or purchasing will be used as the collateral for the loan and a first lien on the real estate will be required. Based on the appraised value, you must have at least 10% - 20% equity in the real estate for a refinance or put 10% - 20% down for a purchase of the real estate. The rent replacement option with minimal down payment, offered by our preferred SBA lending banks, lets you keep more of your cash to invest in growing your business.

UCC Liens

To secure your loan with collateral, the lender will file a Form UCC-1 Financing Statement with the Secretary of State where your small business is located to place a blanket lien on all business assets, excluding vehicles and real estate. This is a public record, expiring after 5 years, that gives the identity of the lienholder and the identity of the debtor. If the business defaults on the loan, the lender will be able to foreclose through seizure and sale of the property defined in the Uniform Commercial Code (UCC).

Before you apply for an SBA loan through SmartBiz, get started with SmartBiz Advisor*. You’ll receive personalized insights that can help you strengthen your lending profile based on key criteria our bank partners look for. This online, educational tool acts as your Intelligent CFO™, free of charge.


* The information provided through SmartBiz Advisor, including the Loan Ready Score, is for educational purposes and is not the same as scores used by lenders for credit decisions. SmartBiz Advisor is not a financial or legal advisor as defined under federal or state law. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.

 What you need to know: The information provided through SmartBiz® University and the articles contained therein are for educational purposes only. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.