No House Collateral unless over 500K loan and 25% equity

No Personal Property Collateral for Loans Under $500,000

The U.S. Small Business Administration (SBA) has implemented a landmark change in its Standard 7(a) loan program through Procedural Notice 5000-847027 and SOP 50 10 7. This new rule eliminates the requirement for personal property collateral for loans under $500,000, significantly simplifying the financing process for small businesses.

The Key Update: Highlighting Residential Property Restrictions

One of the most significant changes introduced by SOP 50 10 7 pertains to residential property as collateral for SBA loans exceeding $500,000. Here's what you need to know:

• $500,000 Minimum Loan Threshold: Residential property, such as your primary residence or vacation home, cannot be used as collateral for SBA loans below $500,000. This new restriction aims to mitigate risk and streamline the loan approval process for smaller loan amounts.

• 25% Equity Requirement: If you wish to use residential property as collateral for loans exceeding $500,000, you must have a minimum of 25% equity in the property. This ensures that the lender has enough cushion in case of a potential default and foreclosure.

• 15% Value Deduction: Additionally, SBA lenders are instructed to deduct 15% from the appraised value of the residential property before calculating the equity ownership ratio.