Collateral is the property a borrower pledges to secure a loan; if the borrower defaults, the lender can seize and sell it to recover the debt. SBA 7(a) acquisition loans are secured by the business's assets and often a lien on the buyer's home when business assets fall short.
Worked example
| Pledged asset | Value |
|---|---|
| Business assets (equipment, FF&E, goodwill) | $300,000 |
| Lien on buyer's home equity (to fill the gap) | $600,000 |
| Total collateral pledged | $900,000 |
SBA rules require the lender to take available personal real-estate equity when business collateral doesn't fully cover the loan.
Why it matters when buying a business
Collateral is why an SBA loan feels personal: the bank records a lien, files a UCC-1, and pairs it with a personal guarantee. Know exactly what you're pledging before you sign, your house is frequently part of the package.
