I don’t think there’s any way around a PG with the 7(a) program. For loans under $500K, you can avoid a lien on personal real estate via an SBA Small Loan. You might be able to avoid a full personal guarantee with traditional bank financing if you can show strong liquidity (e.g., a brokerage account) and structure a limited guarantee tied to specific assets instead of a blanket PG.

I see this question about avoiding personal guarantees often. If you are using SBA lending, anyone that owns 20% or more of the business is required to provide a personal guarantee and there is really no way around it.

If you are looking for conventional financing for a smaller transaction, usually with debt under $15 to $20 million, it is very rare if not impossible to find a lender that will not require a personal guarantee. First, if the transaction is under $5 million and there is a lot of goodwill exposure most conventional banks are just going to push you to an SBA loan product or not do the loan. If it is a larger deal and they are willing to do the loan, they are still going to require a personal guarantee to ensure performance. Banks do not have the investment banking experience in their small business lending or lower middle market lending groups to put into place the tight controls that would be required for them to do deals without a personal guarantee. In addition, businesses of this size are unlikely to have the balance sheet strength / equity and the quality financial reporting to get a lender comfortable doing the transaction without a personal guarantee. Most non-bank lenders will not do deals below $2 to $3 million in debt, but even if you are looking at a non-bank lender most will still require some sort of personal guarantee unless they are taking an ownership interest or have warrants.

There are two other reasons lenders typically require personal guarantees. The first is that there is a substantial amount of data that show Banks recover substantially more on business transactions that fail in liquidation when a guarantee is in place because rather than walking away the guarantor is incentivized to help the Bank work it out and recover as much as possible. Secondly, you are asking the Bank to take a risk on a transaction, and they want to know the owner is going to stand behind it. Without the personal guarantee you could do things that are not in the best interest of the business, like draining the cash for personal expenditures, etc. With the personal guarantee any money you pull the Bank still can go after you for personally. It can be very hard to separate the owner's from the businesses financials in many of these smaller acquisitions, as I know you all see when personal and business expenses are intermingled with the add-backs.

I am always willing to have a call and talk with people about how a personal guarantee works and what happens in a liquidation scenario. But if you are buying a small business and looking for debt, regardless of what option you are seeking you should plan on a personal guarantee. Unfortunately there is no reward without you taking some risk. You can reach me here or directly at redacted