Understanding what is covered actually covered by the personal guarantee

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May 05, 2021

by a searcher from Pennsylvania State University in Atlanta, GA, USA

I have recently learned that for purposes of collateral in an SBA 7a loan, a bank cannot take any assets that are in a retirement account or in personal cash/marketable securities. Therefore, does that mean that these assets are not at risk when making the personal guarantee? I'm just curious what the difference is between assets specifically listed as collateral, and those still covered if making the PG.

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Reply by an admin
from Stanford University in Honolulu, HI, USA
Hmm. I have not seen this question asked previously. Tagging a few lenders to provide perspective; ^redacted‌, ^redacted‌, ^redacted‌, ^redacted‌, ^redacted‌, ^redacted‌, ^redacted‌, ^redacted‌, ^redacted‌, ^redacted‌, ^redacted‌, ^redacted‌, ^redacted‌, ^redacted‌.

I'm also to this post a question asked today that seems related: https://www.searchfunder.com/post/assets-acquired-after-sba-personal-guarentee#
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Reply by a lender
in Yorba Linda, CA, USA
It does not mean that those assets are not at risk, no. It just means the SBA doesn't require the lender to directly lien those assets as collateral. However, a lender could use their own discretion and decide to ask for a direct lien on the non-retirement assets if they felt they were needed that to get them comfortable with the deal. If you have a PG on an SBA loan, and you default on that loan while you have significant marketable securities and cash, the lender and the SBA could and may pursue you judicially under your guarantee. It can be cost-prohibitive for the bank to do so, so the decision to do this would really depend on how much cash the personal guarantor has at the time of default. In my many years of SBA lending, I have not personally seen a business owner with a failing business who also happened to have a lot of personal cash. Therefore, I have never seen a case where the PG was pursued judicially. For a more in depth (and legally accurate) answer about how your personal assets might be exposed under a PG, you may want to consult with a bankruptcy attorney.
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