SBA Loan + Investment Fund Structure

May 27, 2025

by a searcher from University of California, Los Angeles in Palm Springs, CA, USA

Has anyone structured an SBA loan in combination with an investment fund for a business acquisition and roll-up? I’m curious how you have handled investor equity, liability, and exposure, especially when the GP personally guarantees the SBA loan. Do LPs share ownership only in proportion to their investment, or do they have any exposure to the SBA-financed entity and its liabilities? I would appreciate any insights or examples. Thank you!

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Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

From a lender perspective here, any individual or entity that owns 20% or more of the business is required to sign a personal and or corporate guarantee. If it is a fund, then any owners of that fund who end up with an indirect ownership interest of 20% or more of the business would need to sign a personal guarantee. What we find most investors do is setup a separate entity to provide the investment into the new company. They keep the ownership of that entity usually under 20% to avoid the business guarantee, or keep the ownership of the individual members who own that fund individually under 20% of the company being acquired so that the entity signs a corporate guarantee but none of the individuals must sign a personal guarantee. I am happy to talk through this in more detail. You can reach me here or directly at redacted

Reply by a lender
from University of Southern California in Los Angeles, CA, USA

When raising outside investor funds for an SBA-financed acquisition, investors typically expect two key benefits: Preferred Returns: Investors receive a fixed return (often 8-10%) on their invested capital before profits are split further. Equity Step-up: Once investors have received their preferred return, their ownership percentage typically doubles or triples ("steps up"). For example, if investors initially contribute 7.5% of the total project cost, they would later have about 15% ownership after the step-up. To avoid personal guarantees on the SBA loan, investors usually stay below 20% ownership each. The General Partner (the individual actively managing the business) personally guarantees the loan and provides the remaining required equity, maintaining operational control. I've structured many deals with searchers and investors using this model. If you're exploring a similar SBA acquisition structure or have questions, I'm happy to discuss in more detail. Feel free to schedule a meeting here : https://cal.com/ishan-jetley-3d73m8/30min

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