Guarantees for Follow On Acquisitions 7(a) Financing

May 17, 2023

by a searcher from University of South Carolina in Indianapolis, IN, USA

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.

Reply by a searcher
in Zwolle, Nederland

We have had it earlier on 2 times. What helps is if the bank knows you and your trackrecord. For first timers the ask will be higher. Our first time was a 100% guarantee from a well filled sevond company. The second time, the guaranty was about 25% of the total ammount due to track record, some result of necogiations, to spread part of the risk. It also depends on the relationship you have with the bank and persons in the bank, and the persons position in the bank. The higher, the more exceptions can be made is my experience.

Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

I would concur with what has already been said. It is a Bank decision and not an SBA decision. It provides risk mitigation to the Bank. However, if the deal stands strong on its own, you should be able to get it done without the guarantee of your existing business. Happy to look at options for you. We have over 500 funding partners including 50+ on the SBA lending side. You can ping me here or directly at redacted I am confident we have lenders that will do the deal without the guarantee.

+13 more replies.

Join the discussion