Ways to limit personal guarantee?

by a searcher from Loyola Marymount University - College of Business Administration

4 months ago

Hi all - I will fund with an SBA loan but want to limit the amount of the loan to the amount that I'm comfortable pledging as my personal guarantee. I understand they'll have to take a lien on 2 homes that I own. However I anticipate that my acquisition will be in excess of the amount I'm comfortable with pledging as a personal guarantee. Are there banks that can fill the funding gap without personal guarantees as a second funding source to my SBA loan? If I sign up investors, I assume they don't need personal guarantees, correct? And lastly, it seems from what I've read, seller-financing usually asks for personal guarantees.  Any ideas here? Am I correct in my assumptions? Thanks for all your help.

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searcher

If you find a motivated seller, you can get away from a PG on a seller note. I’ve heard of some people staying away from a PG on conventional loans where there is sufficient equity up front (e.g., 30-40%). But small loans (< $5 million) with small equity (<= 20%) will likely require a PG unless you find a very motivated seller.

4 months ago | like reply | 2 likes

searcher from University of Nebraska - Lincoln

Most investors are going to want you to have a PG. They want the additional pressure of you fulfilling the loan. Completely makes sense. You won't get a look from most if there isn't a PG in place. Exceptions will always be made for those with prior successful acquisitions and exits. But those are people with pre-existing relationships.

* That said, you can take out a HELOC, lower your home's equity to less than 20%, and 6 months later apply for an SBA. This may keep your home off the PG. They can still take your home, but it's lower in the pecking order. Offset some of the HELOC cost with a CD against the cash.

Getting a HELOC after an SBA loan won't be possible, so the HELOC serves doubly as a cash reserve if the business goes south.

* Acquiring a business with the same NAICS code as your existing business, may lower your equity injection requirement.

* 401Ks, and IRAs are protected, so any cash placed there, would not be available.

Lenders, feel free to chime in. ^Searchfunder member‌ ^Searchfunder member‌

4 months ago | like reply | 1 like

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