Protect home from SBA personal guarantee

December 25, 2020

by an investor from University of California, Berkeley - Haas School of Business in San Francisco Bay Area, CA, USA

I'm considering an SBA 7(a) loan that comes with a personal guarantee. Is there a legal way to exclude a home from the personal guarantee, for example by moving it into a trust before the SBA loan is taken out? Any advice would be greatly appreciated.

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Reply by a searcher
from The University of Auckland in Los Angeles, CA, USA

Personal guarantees should be avoided wherever possible. Only do it if you must. Look for non-SBA sources first, even if it means more equity down. Some banks will allow you to limit the PG to exclude certain assets - definitely try this but most will say 'no'. I think the personal guarantee is unethical and bad for business but I know lenders adore them. Taking someone's house because covid (or some other disaster) ruined their business is unconscionable in my view, and very bad for free enterprise. The very idea of limited liability companies was to allow business to take risk necessary to flourish but PGs disrupt this. PG insurance was tried in the US but failed due to poor execution. They offer it in the UK. There is tremendous demand in the US - can't believe it is not offered; borrowers would pay a fortune for it.

Reply by a searcher
in Loudon, NH, USA

I am under the impression that if you have less than a certain % of equity in your home, the SBA will not attach your personal home. You might want to talk to an SBA lender for more details but if you do have a lot of equity, you could get a home equity line of credit (HELOC) in advance and draw on it to 'use' that equity. You may also be able to 'season' that draw for a few months and use it as part of your equity injection. Again, best to speak with some of the great SBA lenders on here like ^redacted‌ and ^redacted‌ for the most accurate answers specific to your situation.

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