Understanding what is covered actually covered by the personal guarantee

by a searcher from Pennsylvania State University

3 years ago

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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lender from Fordham University - Gabelli School of Business

First, the lender sells off all assets with the loan, if that does not payoff the loan, they will then go after any personal assets listed on the PG

3 years ago | like reply | 0 likes

lender

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.

3 years ago | like reply | 2 likes

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