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Competing Non-SBA Liens

If your institution has any non-SBA loans to the borrower or its principals/guarantors, or has liens from any such loans against collateral securing the SBA loan, please be aware that proceeds from sale of collateral should be applied based on relative lien position as required by the SBA Loan Authorization.   SBA also would expect that prudent and reasonable liquidation-related expenses be allocated by lien priority.  Please be mindful that SBA will only recognize other lender priority liens, such as purchase money liens, if the lender has properly perfected and received SBA’s prior written concurrence.  

Lender’s non-SBA-guaranteed loans and recoveries obtained on those loans:  

If your institution has any non-SBA-guaranteed loans to the borrower or its principals/guarantors, whether those loans are secured by any of the same collateral that secures the SBA-guaranteed loan or not, lender must not take any action that will confer a preference upon itself in terms of recovery on its own loan as compared to its recovery on the SBA-guaranteed loan.  The lender’s recoveries on each such loan against collateral securing both generally will be governed by lien priority, although SBA expects the lender to diligently pursue recovery of both liens.  When lender takes collection action against borrower’s other assets or other assets of principals/guarantors (for example, through salary offset), SBA expects the lender to prudently pursue recovery on both loans.  SBA also expects that any recoveries lender realizes from such action will be divided pro rata (based on the comparative balances outstanding on the two loans) between the SBA-guaranteed loan and the lender’s own loan.  SBA also would expect that prudent and reasonable liquidation-related expenses be allocated by lien priority if expenses can be so identified and broken out.  However, if not practical, expenses to pursue actions affecting multiple loans can be shared pro rata between both such loans (although SBA would not agree to share in expenses exceeding its pro-rata share of recoveries).  

For additional questions or concerns contact loanresolution@sba.gov.