I am in the process of purchasing a second company, using both SBA 7(a) and 504 loans. My bank has requested that my original business, which has 7(a) loan, provide a guarantee for the new loan intended for the second business. I should note that this second company is an unrelated business that will operate under a distinct LLC.

For clarification, the bank is not proposing a lien on the first business, but rather asking it to stand as a guarantor for the loan of the second.

I'm wondering, is this a prevalent practice? Has anyone successfully negotiated with their banks to eliminate such requirements? My goal is for each business to operate as an independent entity without debt cross-collateralization.

Any input or experience shared would be greatly appreciated.