Can you carve specific assets out of guarantees on SBA loans?

by a searcher from Northwestern University - Kellogg School of Management

4 years ago

I have a very small (in equity % terms) equity stake in my family's business, and they would kill me if I pledged that equity in a personal guarantee for a loan. I'm fine pledging literally every other asset I own, but I'm wondering if SBA allows for any sort of carve-outs in personal guarantees.

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searcher from Northwestern University - Kellogg School of Management

Thank you so much, Sheila and Colin, this is very helpful.

4 years ago | like reply | 1 like

intermediary from Boise State University

SBA lenders and most commercial lenders aren't interested in taking the stock/equity of privately held companies as collateral. Private company equity is not liquid (ie can't be sold quickly easily through a public market).. However, you do have to disclose your ownership interests in any other companies. This is required per SBA rules to determine "size standards" under the Affiliate rule. If, for example, your family company is larger than SBA size standards that may preclude you from getting an SBA loan for another business. However, the size standards are pretty flexible. Check with your SBA lender.

Keep in mind, a personal guarantee is NOT the same thing as pledging collateral. A personal guarantee is a promise to pay if the business entity can't/won't pay back the loan. SBA loans require a personal guarantee from owners AND a pledge off all available collateral (generally from the business entity that is applying for the loan). These are two different things. Collateral consists of tangible assets - real estate (can be 2nd or even 3rd lien position), vehicles, equipment, and COULD BE publicly traded stock (think Apple, HomeDepot, etc.) but NOT privately owned business equity such as your family business. Hope that helps.

4 years ago | like reply | 3 likes

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