Are SBA 7(a) Loans Assumable?

Fortunately for borrowers, SBA loans, including the SBA 7(a) loan, are fully assumable with SBA approval. However, if you’re selling your business, getting approval from the SBA for another borrower to assume your loan can be somewhat complex. In particular, the SBA will look to ensure that the new borrower is eligible under SBA guidelines, and has enough financial strength and business experience to make a potential loan default unlikely.

What are the Requirements for Assuming an SBA 7(a) Loan?

The SBA will carefully examine a borrower trying to assume a current SBA 7(a) loan, ensuring that they meet a variety of requirements. These include:

  • Being an SBA-eligible borrower under the most recent SBA guidelines

  • The individual assuming the loan needs to be the primary owner of the business, and should have equal or better business experience/management skills than the current borrower

  • Good credit (usually 680+)

  • Having the financial strength to fully repay the loan

  • A written agreement stating all terms of the loan assumption must be created and signed by all parties

  • The agreement needs to have a “due on sale or death” clause, which will prevent any further assumption of the SBA 7(a) loan

  • Collateral must not be released during the assumption process, and the assumption process should not reduce the value of any current loan collateral

  • The assumption must not have a negative financial impact on the business

  • The seller must not keep the title of the property as collateral/loan security (i.e. no real estate contracts)

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