Collateral shortfall

Definition

The gap between a loan and the hard assets securing it.

Why It Matters

Lenders bridge it with the SBA guaranty and with your own signature, so a shortfall does not sink a good deal, but it does explain why the loan leans on cash flow instead of anything it could repossess. It is also why a lender may look to other property you own where there is equity in it, which is a question to ask before underwriting starts, not after. A deal bought mostly for goodwill will always look like this: the collateral test is not the one that decides it.

In numbers: A $1M loan backed by $600k of assets has a $400k collateral shortfall; the SBA does not decline for it alone, but it drives the lien on a home.