Have your spouse PG in California?

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December 03, 2024

by a searcher from INSEAD in Oakland, CA, USA

Self funded searcher located in CA. Question on SBA personal guarantee: Does anyone have any recommendations on pros/cons to having a spouse added as a personal guarantor on the SBA loan? Spouse would not be involved in the business at all. Of course first thought would be NOT to include them on the loan, but since CA is a community property state, is it irrelevant in a default scenario? Pros: can include spouse's meaningful w2 income. Cons: does this put more of our assets at risk? Thanks!

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Reply by a searcher
from INSEAD in San Francisco, CA, USA
The main asset the SBA is concerned with is real estate. So if you get an SBA loan and have a house they will require you to put up your house as collateral. If you and your spouse own the house jointly, he/she will have to sign off on that regardless. This applies to all real estate owned jointly up until the value of the loan. Doesn't take into account other assets like cash, stocks, etc...

I'm not quite sure about your point around W2 income since the SBA lenders I've spoken to are basing the loan on the cash flow of the business. Do you mean that you could say that you don't need a salary from the business since you are relying on your spouse's income? That might make a difference depending on how much cash flow the business has, but probably not a ton.
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Reply by a searcher
from Harvard University in Palo Alto, CA, USA
Thanks Luke for tagging me. I did not get a SBA loan so i dont have direct experience with this scenario. On the other hand i have kept my spouse out of any business liabilities in order to a avoid any unnecessary stress on our relationship.
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