After 12 months of acquisition - ideas to get PG/Collateral released

searcher profile

June 18, 2024

by a searcher in San Francisco, CA, USA

I bought a niche service business 18 months ago. While revenue is trending upwards, we have many loyal customers, and there's not much competition, I've realized that the operational intensity is not for me. I am planning to hire a General Manager to run the business.

I am seeking creative ways to get collateral/PG released from the SBA. What conditions need to be met to make this happen ?

Thank you in advance for your help.

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commentor profile
Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
Unfortunately the SBA personal guarantee is required if you are a 20% or greater owner. So unless you bring your ownership below 20% (which technically you need the lender and SBA approval to do), then you will still be required to be a guarantor. Even if you brought your ownership down, you would likely need a replacement guarantor that is providing the same strength to get a lender and the SBA to agree to the replacement. There really is no way around having 20% or greater owners guarantee an SBA loan.

As for the release of additional collateral, if the debt is paid down to a level where the existing collateral based on SBA advance rates covers the loan, then you might be able to get outside collateral released. However, if the deal is still not deemed fully secured without that outside collateral, then you will not be able to get it released. The only option you might have is to agree to pay down the debt by the value that outside collateral provides in exchange for the Bank releasing it.

As the end of the day it is up to the SBA and lender discretion on releasing a guarantor or collateral. They can deny it for any reason they want. Sorry, this is probably not the news you want to hear, but I wanted to be up front about it.
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