Operating Agreement and SBA Loan as LLC vs Individual

April 20, 2026

by a searcher from Harvard University - Harvard Business School in Los Angeles, CA, USA

Edited Post: Thanks to everyone who responded. I am realizing I phrased the initial question poorly. Along with a group of investors, I am buying a business as an asset purchase. We've established a NewCo and a HoldCo, the former being 100% owned by the latter. I will own the largest slice of the HoldCo but not greater than 50%. Other investors will round out the rest of the equity, all under 20%. The question is, who should be the equity holder for HoldCo? Me, as an individual, or an LLC that I own outright? Original Post: I'm working with a sole investor on an acquisition in which I will be 1) full-time operator 2) minority owner at <50% 3) Largest equity holder 4) SBA Loan Guarantor. I am considering running the deal and loan through an LLC rather than as an individual. Would you recommend/not recommend using an LLC? Thanks. Any downsides either way?

Reply by a professional
from Widener University in Philadelphia, PA, USA

Hey James - Great question and I believe I understand the ask. You will own less than 50% of the business, but you will be the largest equity holder. You are trying to determine whether to hold that equity in an LLC (not should you acquire the assets as an LLC, but should your equity in the acquiring entity be titled in the name of a HoldCo LLC). You’re really deciding two things: how you hold your equity and how the SBA structure fits around that. On the equity side, I generally favor using a HoldCo LLC rather than owning directly. The reason is less about day-one structure and more about what happens after close: - It gives you a layer of control above the BuyCo operating agreement. - You’re still subject to transfer restrictions there, but you retain flexibility at your level. - It makes estate planning and internal transfers significantly cleaner without having to reopen or renegotiate core deal documents. - It preserves optionality. If you later want to restructure, bring in capital, or adjust your tax posture, it’s much easier to do that at the HoldCo level than inside the operating company. In many cases, buyers don’t feel this immediately, but it tends to matter once you’re operating and thinking long-term about ownership. On the SBA side, the main point is this doesn’t eliminate your personal exposure: - You’ll still be a personal guarantor - The lender will underwrite you individually - They may require transparency or simplicity in the ownership chain The only real “downside” to a HoldCo is execution friction if it’s not aligned early with the lender: - Some SBA lenders prefer a cleaner structure - It can slow things down if introduced late - Occasionally they’ll push to simplify Most of this is easily managed if structure is addressed sooner rather than later. In many deals, the structure ends up being: - HoldCo LLC owns your interest - You personally guaranty the SBA loan Overall, I still lean HoldCo. It doesn’t change much at signing, but it gives you more control and flexibility once you’re actually operating the business.

Reply by a searcher
from Massachusetts Institute of Technology in Apex, NC, USA

1) Likely asset sale for business so you'd want pre-formed entity to buy assets. Doing so personally is IMO a wildly bad idea for the reasons in the name LLC - Limited Liability. You want personal protection b/c things can and will go bad. LLC is cheap to set-up and maintain. Different entities have different use cases (C corp for QSBS or institutional investment), but I can't think of a good reason (esp if you have employees) to not form an LLC/entity. 2) If your investor owns more than 20%, they will also need to guarantee an SBA deal - worth knowing now if they'll do that or deal will need to be structured differently. 3) Bit confused by saying you're the minority owner, and largest equity holder, unless you mean investor controls board, and you have more shares/equity.

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