Debt financing

searcher profile

December 04, 2018

by a searcher from University of Minnesota - Carlson School of Management in Minneapolis, MN, USA

Is it typical for a searcher to take out an SBA loan with a personal guaranty to fund the debt side of the transaction?  Do the banks make any requirements for a commitment from the equity holders in event of default?  It seems like the personal  guaranty is a heavy burden for a searcher to hold for the life of a transaction, especially when there isn't a lot of hard assets on the balance sheet.

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commentor profile
Reply by a lender
in Yorba Linda, CA, USA
In a typical SBA-financed acquisition, there are 1-2 personal guarantors and they are the operators. The investors are not required to guaranty if their individual ownership falls below 20%. Think of it this way, they have their funds at risk and the operator has his PG at risk, usually a relatively fair trade-off depending on how much ownership the operator has relative to the amount of equity he/she put in from their personal funds. I am happy to share my experiences on a call. I have seen mostly great success stories in my 25+ years of SBA lending (the last 9 of it exclusively dedicated to acquisition lending). redacted
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Reply by a searcher
from University of California, Berkeley in San Francisco, CA, USA
SBA loans all require a PG from someone. Anyone who owns more than 20% of a company getting an SBA 7a acquisition loan has to provide a PG. There are some creative ways I have learned to get investors a greater than 20% economic ownership without having to provide PGs. If you want to talk offline I would be happy to help you think through that. Also, below $2MM of EBITDA it is hard to find non-SBA lenders who will do substantial lending for deals without a significant hard asset base.
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