Investor-Backed Search: Who signs the PG and who provides loan collateral?

February 24, 2026

by a searcher from New York University - Leonard N. Stern School of Business in New York, NY, USA

Hello community! I'm aware of the Investor-Backed model gaining popularity, and have an investor with whom I'd like to partner (we are both first-timers in ETA, but experienced in other areas of business). My question is: In the investor-backed model, it seems like the investor typically puts up 100% of the equity needed to close, but the entrepreneur/CEO (me in this case) signs the PG and ends up with a >80% economic interest in the business. In the case of an SBA-backed loan funding 90% of the purchase price, this equity down payment is 10%, but the SBA also requires 10% post-closing liquidity. So who pledges their capital to meet the post-closing liquidity requirement? Also the investor? For example, we want to do a $5M deal, of which $4.5M would be an SBA-backed loan, and $500K would be the equity down payment. I'd be the Personal Guarantor, and the investor would have no guarantor responsibilities as they want to be purely a passive investor. But the bank still wants collateral for the loan, in the form of $500K liquid on the sidelines, as post-closing liquidity. Where does that come from, assuming I have zero investable/liquid assets of my own, and the investor doesn't want to be a guarantor? I welcome any thoughts! I have one lender telling me the investor needs to put up this collateral, which doesn't seem right - that basically makes them a guarantor. Or I can put up this collateral, but I don't have $500K liquid on my own - if I did, I might just do a deal myself without an investor! For those unfamiliar with the Investor-Backed model, here's a podcast episode by Will Smith that explains it well: https://acquiringminds.co/webinars/investor-backed-search-and-sba-buy-bigger-keep-control

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

I would love to connect with you and walk through the options. It is not an issue to have the investor bring 100% of the equity to the table on the transaction. That is common. As for post-closing liquidity, the lenders are going to look towards the guarantor to have that. There is no mandatory post-closing liquidity amount required by the SBA. Some lenders have a policy amount they require and many do not have a set amount and they make a determination on a deal-by-deal basis. The amount of post-closing liquidity lenders typically want to see varies depending on the working capital needs of the business, the debt service coverage ratio, and other risks the business might have. There are many ways you can enhance your liquidity if you do not have enough, which can include gifts or using a home equity loan or even potentially retirement assets. However, there is a bigger question you need to consider in this situation. If you are looking to borrow $5 million for your acquisition, lenders are not going to just look at your post-closing liquidity but they are also going to look at your overall net worth. Lenders are looking for financial support from their guarantors. I do not know what your financial position is, but if you have a low net worth of just a few hundred thousand dollars, it is unlikely you would qualify for an SBA 7A loan for $5 million. Lenders will likely want additional guarantor support to lend you that much, especially if the loan is not fully secured by hard business assets, which is often the case when it comes to SBA 7A business acquisition loans. My recommendation would be to get yourself pre-qualified for SBA financing in advance. That way you will know how much you can qualify for or if you will need additional support to get to a higher loan amount. That is something we can certainly assist you with. If you need that assistance, you can reach me here or directly at redacted We can also discuss other strategies to prepare yourself for future financing.

Reply by a lender
from Cornell University in Los Angeles, CA, USA

Hi ^redacted‌ - nice to meet you. We do these deals all the time so let me clear a few things up. First, you are correct that the investor can put up 100% of the equity (the $500K in your example) and as long as they hold less than 20% ownership, they do not need to sign a personal guarantee. That is standard SBA structuring and we have closed plenty of deals exactly like this. The issue you are running into is not about collateral, it is about post-closing liquidity. SBA lenders want to see that the borrower (you) has liquid assets available after closing to support the business. In your case, on a $5M deal, that number comes out to roughly $500K (around 10% of the purchase price). That said, we work with lenders who are comfortable with less than that, so the actual requirement can vary. Now here is the key part. If you personally do not have those liquid assets, the easiest path is a gift from a friend or family member. That is fully acceptable under SBA guidelines. The one thing to be aware of is that gift cannot come from the same investor who is already covering the equity injection. That would create issues from a lender and SBA compliance standpoint. We have a lot experience financing various companies via the SBA. If you ever need help reviewing a deal, I am happy to help. We work with all the major SBA lenders. The bank pay us after your loan closes, so this is a 100% free service for you. You can email me directly at redacted or schedule a meeting with me: https://cal.com/francodeguzman/30min. Look forward to chatting!

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