504 liquidations

The Commercial Loan Service Centers are responsible for 504 liquidation.


When should the CDC request a debenture purchase?

The CDC should request the debenture purchase and classification of the loan into liquidation status when:

  • The loan is 60 or more days past due with no prospect of a deferment or a workout. Based on a review of current financial statements, determine if a deferment or a workout that falls within regular 504 loan servicing guidelines will assist the business. This type of action will be referred to the center servicing department for review and processing

    For a workout that requires extension of the maturity date, or other changes that do not fall within regular 504 loan servicing guidelines, SBA must be notified to purchase the debenture and classify the loan in liquidation status.

  • The third-party lender or other senior lien holder has initiated foreclosure proceedings

  • A bankruptcy, or other legal action, which will adversely affect repayment of the 504 loan, has been initiated

What are the CDC reporting requirements?

SBA has devised a single form, the CDC SBA-serviced Loans Quarterly Status Report, to report on two CDC requirements:

Pre-debenture purchase

All CDCs must submit a written update, using the link above, relative to collection activity by the CDC on each loan in its portfolio that is 60 days or more past due until the debenture is purchased.

Post-debenture purchase

For loans made under the PCLP authority of the CDC, or if the CDC is a designated ACL, a status report must be submitted to SBA within 15 days after debenture purchase, and every 90 days thereafter, using the link above. The report must include a written update relative to the CDC’s liquidation activity.

What are SBA’s site visit requirements?

A site visit must be completed with a site visit report being submitted to SBA within 15 days of the loan being placed in liquidation status.

A site visit should determine whether a workout is feasible by:

  • Identifying the collateral available for liquidation
  • Establishing the collateral’s recoverable value
  • Determining whether the borrower is behind on the rent and whether a liquidation sale of the personal property collateral can be held on-site
  • Determining whether any real property collateral is occupied by a person other than the borrower
  • Developing a liquidation strategy
  • Assessing any environmental risk associated with the anticipated method of liquidation
  • Arranging for the care and preservation of the collateral pending liquidation

What third-party lender information is the CDC required to report to SBA?

The CDC must provide information relative to the status of the third-party lender’s loan:

  • The loan balance, including principal, interest, default interest, late fees, and prepayment penalty
  • Indication if the loan is in default
  • If a foreclosure action is imminent


Legal notices

The CDC must forward, via email, to the appropriate Commercial Loan Service Center (CLSC), copies of all default, foreclosure and bankruptcy notices filed by the third-party lender.

Do CDCs have to create a liquidation plan?

A 504 Liquidation Plan should be prepared after a site visit has been conducted and before any significant action is taken to liquidate the loan.

Liquidation plans should be completed and submitted to SBA within 30 days after the purchase of the debenture.

What actions must have SBA approval?

Release of collateral to facilitate a short sale; release of redemption rights; and other requests by the CDC for an action to be taken must be submitted via email, and include all appropriate supporting documentation as outlined in SOP 50 55, Chapter 6 and Chapter 8.

Please consult the current Servicing and Liquidation Actions CDC Matrix for actions that may be taken under the unilateral authority of the CDC.

What are SBA's appraisal requirements?

Protective Bid Analysis (Exhibit A) must be prepared based on an appraised value that is current to 120 days prior to the action for which it will be used.

  • Calculate the net equity
  • Determine if there are any additional mitigating circumstances either indicated by the appraiser or noted in the site visit
  • Based on the above factors, determine if it’s in the agency’s best interest to enter a bid at the foreclosure sale

Please note that an appraisal prepared for the third-party lender and shared with the SBA does not meet program requirements.

What are SBA’s requirements relating to environmental investigation?

In the event the protective bid analysis indicates sufficient net equity in the collateral to consider entering protective bid at the third-party lender foreclosure sale, the NAICS code must be determined.

If the NAICS Code for the loan is on the list of environmentally sensitive industries, a Phase I and reliance letter must be submitted for SBA review. For all other loans, at a minimum, an environmental questionnaire must be completed. Refer to SOP 50 55, Chapter 5 for additional information on Environmental Risk Assessment.

Will SBA reimburse CDCs for liquidation expenses?

SBA will reimburse the CDC for recoverable expenses related to the liquidation of the loan subject to:

  • CDC-CPC Reimbursement Request must be submitted electronically
  • A separate request must be submitted for each individual loan
  • Recoverable expenses can only be submitted when the aggregate total is $5,000 or more, or in any amount when submitted with the final wrap-up report at the conclusion of all liquidation
  • Copies of invoices and other supporting documentation must be included
  • Requests may be submitted with the Wrap-up Report, regardless of dollar amount

Who has litigation responsibility?

Pursuant to SOP 50 55, Ch. 3(C)(1), ACLs and PCLP CDCs, “are responsible for conducting all litigation needed to ensure recovery on all of the 504 Loans in their portfolios—including charged-off loans that have not been referred to Treasury.” (See, also, 13 CFR 120.975(a).) CDCs must have either in-house counsel or a contract with outside counsel for the performance of debt collection litigation, as approved by SBA. (13 CFR 120.975(c).) CDCs must submit a 504 Litigation Plan to the appropriate CLSC for SBA’s written approval prior to initiating non-routine litigation. (13 CFR 120.540(c)). For all other litigative matters, the Center works in conjunction with District Counsel to monitor cases and take appropriate actions.

When may an Offer in Compromise be submitted to SBA?

If a deficiency exists after all collateral has been liquidated, obligors who are unable to pay the remaining balance in full, may be able to settle their liability on the SBA loan for less than the full amount due. OIC Tabs are required to be submitted to facilitate in the review. Refer to SOP 50 55, Chapter 23 for additional information.

When is a wrap-up report required?

504 Liquidation Wrap-Up report is to be submitted to SBA by the CDC within 90 days of completing all reasonable and cost-effective recovery efforts.

Forms and documents

Contact us

Please refer to SOP 50 55 to learn more about the 504 loan program, or feel free to contact the appropriate Commercial Loan Service Center. 

CLSC - Fresno CLSC - Little Rock

Commercial Loan Service Center - Fresno

801 R St., Suite 101

Fresno, CA 93721


Phone: 800-347-0922

Commercial Loan Service Center - Little Rock

2120 Riverfront Dr., Suite 100

Little Rock, AR 72202


Phone: 800-644-8564

Submit documents:

Submit documents:

Last updated May 23, 2023