Understanding risks associated with PG in SBA loans

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by a searcher
in Washington, DC, USA

1yr ago

Understanding risks associated with PG in SBA loans

I'd like to understand the following:

1. I am aware the cap for SBA 7a loan is $5M (at least as of today). How do they determine how much actual loan can an individual or the potential business receive? Do I get $2M, $3M or full $5M - how is that decided? My understanding is many lenders lend on cashflow basis and not collateral - how does that play into this?

2. Say the searcher / acquired business becomes insolvent, has to declare bankruptcy. What all does the SBA come after? For example: assets under my name upto a $ value of the loan amount owed, what about future cashflow, do they come after assets you have in another country?

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reply by a searcher 1yr ago
from The University of Chicago in Seattle, WA, USA

1) loan depends on the cash flow, lender’s perceived risk in the business and total consideration (purchase price)
2) first they will liquidate the assets or try to sell the business. If there is left over principal, they will come after your assets. If you don’t have enough you can declare personal bankruptcy. Your assets abroad could be safe, depending on the country and its international agreements with the US.

Hope this helps!

reply by a lender 1yr ago
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

I would be happy to have a discussion and go over in more detail how a personal guarantee works. However, below are a very responses to your questions:

Most SBA lenders are looking at how much debt the business qualifies from a cash flow perspective. Although the loan does not need to be fully secured by hard collateral, how comfortable certain lenders get on a transaction might be impacted by the collateral available. Not all lenders will do deals that are fully secured by goodwill business value where the business does not really have any hard collateral. So the collateral can impact the options available. Also, most lenders are looking at the owner(s) / Guarantors to have a certain amount of strength and post-closing liquidity to provide fall-back support as well as the appropriate experience to operate the business. All of this can impact at what level a lender will get comfortable to provide financing. We do pre-approvals for Borrowers all the time. We would be happy to look at your situation and provide you more specific feedback on what you might qualify for.

If the business becomes insolvent the Bank would liquidate any assets available. The Bank can then pursue the guarantors if they choose to do so. They could also go to the SBA, get paid on the guaranteed portion of the loan, write off the rest of the loan, and leave the SBA to pursue the guarantors in the future, which they rarely do. If the guarantors have outside assets that are worth pursuing, it is more likely a Bank would pursue those assets. You also have the option of filing a personal bankruptcy to wipe out the debt at any time. I would be happy to walk through this as well.

If you have additional questions you can reach me at redacted or here. Good luck.