Navigating SBA Litigation Plans

In recent months, lenders have seen a rise in SBA loan defaults, prompting many institutions to revisit their litigation plan procedures to ensure compliance with SOP 50 57 4, which became effective on Nov. 1, 2025.

When is a litigation plan required?

Lenders must submit a litigation plan to the SBA before initiating any “non-routine litigation,” unless the SBA approves an exception for extraordinary circumstances, which might include an emergency such as the loss or dissipation of collateral where lenders need to act before SBA approval to preserve the collateral. Non-routine litigation includes the following:

• Cases with disputed factual or legal issues requiring adjudication;
• Litigation where debt collection litigation expenses are expected to exceed $10,000;
• Situations involving conflicts of interest between the lender and SBA;
• Cases where the lender has made a separate, non-SBA loan to the same borrower.

As an example, if a lender expects legal fees for a court case to exceed $10,000, a litigation plan must be submitted for SBA approval before proceeding.

Routine litigation does not require prior SBA approval, except for loans under the Certified Lenders Program.

Understanding the $10,000 threshold

“Debt Collection Litigation Expenses” refer to legal fees and costs from outside counsel for court actions. If these expenses exceed $10,000, the litigation is considered “non-routine.” Notably, expenses from non-judicial actions (like loan modifications, workouts or non-judicial foreclosures) are excluded from this threshold.

As an example, if a lender spends $8,000 on a non-judicial foreclosure, no litigation plan is required. However, if a subsequent court action pushes total legal expenses to $12,000, a litigation plan must be submitted within 30 days of the action taken.

Submission process

Lenders must use the SBA’s official Litigation Plan template ( link for SBA’s official Litigation Plan template) which covers nine essential sections:

1. Lender Information
2. Loan Information
3. Critical Information
4. Attorney Information
5. Recovery Analysis
6. Litigation Synopsis
7. Narrative
8. Attorney Fees & Litigation Costs Approved/Incurred To-Date
9. Proposed Litigation Budget

Plans should be submitted via email to SBALitigation@SBA.gov. However, plans may also be uploaded to E-Tran, provided a corresponding email is sent to notify the center of the upload.

Amendments and material changes

Any material deviation from the original litigation plan, such as expenses exceeding the approved budget by more than 15 percent, requires an amendment and SBA approval before proceeding. As an example, if a lender’s litigation plan budgeted for $15,000 for legal fees and the costs rise to $18,000, an amendment must be sent to SBA and approved before incurring further expenses.

Best practices for lenders

• Complete the SBA Litigation Plan form in full.
• The “Recovery Analysis” section must include an estimated recovery. This cannot be $0.
• In the case that litigation spans multiple states, submit a separate plan for each.
• For companion loans, list all loans and identify the primary loan by the highest original balance.
• Label supporting documents with the primary loan number.
• Attach an engagement letter with legal counsel.

Proper planning and documentation are essential for compliance and to preserve the right to reimbursement for recoverable legal fees and expenses. For further assistance on this and any other SBA-related questions, lenders can contact lenderservices@wbd.org. 

Jill Faber is a lender services manager with WBD. Contact her by email at jfaber@wbd.org.