RATIONALE FOR GOING WITH AN SBA LOAN

Can someone explain the rationale for going with SBA financing if you have substantial assets like real estate, cash holdings or retirement savings?

From what I understand SBA requires an unlimited personal guarantee, so in the worst case scenario you could lose everything and start over from zero after going through bankruptcy.

Alternatively, one could go with other types of debt (e.g. from SBIC lenders, mezz, ABL, cash flow loans, etc) that do not require a personal guarantee. The interest rate difference is perhaps 2-4% depending on the type of loan. There are lots of lenders out there and a good debt broker should be able to get competitive rates for a quality business.

I can see how SBA financing make sense for someone who is fresh out of business school and has no assets. But otherwise the incremental risk does not seem to justify saving a couple of percent on the rate.

Interested how others think about SBA financing vs. going with higher cost debt given the personal risk tradeoff.



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