SBA Lien on primary residence?

September 07, 2021

by a searcher from Pepperdine University - Graziadio School of Business and Management in Boise, ID, USA

I am in the middle of a deal and had not heard of this before.....SBA acquisition loan, do lenders require that you just pledge real estate as collateral (along with PG) or do they actually place a lien on your primary residence?

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Reply by a searcher
from Drexel University in Philadelphia, PA, USA

This might be lengthy, but Per Subpart B Chapter 2 of the SBA;s SOP###-###-#### F) the SBA applicant must demonstrate a need for the SBA loan. In simple terms they cannot obtain the requested loan funds from other sources without undue hardship. The lender must also look at personal resources of the applicant and spouse to determine if they have enough alternative business funds from immediate family, HOWEVER, they cannot consider the personal resource test of the spouse if "there is a legal impediment to access the personal resource test of the spouse, such as those held by an independent Trustee of an irrevocable trust, six months or older..." So if your home is held in an irrevocable trust managed by an independent trustee it would be beyond the reach of the SBA Lender for the purposes of the personal guarantee,,,this is a rather drastic step, but if your goal is just to protect your family's home while trying to access SBA Funds this may be something you pay $300/hr to a lawyer to discuss with you, since it could have other estate planning implications.

Reply by a lender
from California State University, Sacramento in Auburn, CA, USA

As a follow up to Heather's response, let me further clarify. The placement of a Deed of Trust on a borrower's home and/or rental home(s), vacation home(s), etc. is standard in SBA lending as per SBA's Standard Operating Procedures (SOP). We are mandated by SBA to collateralize a loan up to 100% of the loan amount, after discounting, when collateral (real estate or other) is available. The 25% equity rule is the letter of the law of SBA but it does not mean that some lenders (acting in a prudent lending manner) don't take a deed of trust on a home or rental home that has less than a 25% equity position. We often take a deed of trust on a borrower's home, no matter the equity position, as 1) it motivates a borrower as their home is on the line, 2) the home's mortgage balance and SBA loan balance is paid down monthly thereby improving the collateral each day, and 3) the real estate's value is increasing (in theory, over time). In theory, the day we make the loan the collateral is its worse and improves over time through appreciation and debt reduction.

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