Who signs the PG and who provides loan collateral in Investor-Backed Search?

February 24, 2026

by a searcher from New York University - Leonard N. Stern School of Business in New York, NY, USA

Hello community! I'm aware of the Investor-Backed model gaining popularity, and have an investor with whom I'd like to partner (we are both first-timers in ETA, but experienced in other areas of business). My question is: In the investor-backed model, it seems like the investor typically puts up 100% of the equity needed to close, but the entrepreneur/CEO (me in this case) signs the PG and ends up with a >80% economic interest in the business. In the case of an SBA-backed loan funding 90% of the purchase price, this equity down payment is 10%, but the SBA also requires 10% post-closing liquidity. So who pledges their capital to meet the post-closing liquidity requirement? Also the investor? For example, we want to do a $5M deal, of which $4.5M would be an SBA-backed loan, and $500K would be the equity down payment. I'd be the Personal Guarantor, and the investor would have no guarantor responsibilities as they want to be purely a passive investor. But the bank still wants collateral for the loan, in the form of $500K liquid on the sidelines, as post-closing liquidity. Where does that come from, assuming I have zero investable/liquid assets of my own, and the investor doesn't want to be a guarantor? I welcome any thoughts! I have one lender telling me the investor needs to put up this collateral, which doesn't seem right - that basically makes them a guarantor. Or I can put up this collateral, but I don't have $500K liquid on my own - if I did, I might just do a deal myself without an investor! For those unfamiliar with the Investor-Backed model, here's a podcast episode by Will Smith that explains it well: https://acquiringminds.co/webinars/investor-backed-search-and-sba-buy-bigger-keep-control

Reply by a lender
from Cornell University in Los Angeles, CA, USA

Hi ^redacted‌ - nice to meet you. We do these deals all the time so let me clear a few things up. First, you are correct that the investor can put up 100% of the equity (the $500K in your example) and as long as they hold less than 20% ownership, they do not need to sign a personal guarantee. That is standard SBA structuring and we have closed plenty of deals exactly like this. The issue you are running into is not about collateral, it is about post-closing liquidity. SBA lenders want to see that the borrower (you) has liquid assets available after closing to support the business. In your case, on a $5M deal, that number comes out to roughly $500K (around 10% of the purchase price). That said, we work with lenders who are comfortable with less than that, so the actual requirement can vary. Now here is the key part. If you personally do not have those liquid assets, the easiest path is a gift from a friend or family member. That is fully acceptable under SBA guidelines. The one thing to be aware of is that gift cannot come from the same investor who is already covering the equity injection. That would create issues from a lender and SBA compliance standpoint. We have a lot experience financing various companies via the SBA. If you ever need help reviewing a deal, I am happy to help. We work with all the major SBA lenders. The bank pay us after your loan closes, so this is a 100% free service for you. You can email me directly at redacted or schedule a meeting with me: https://cal.com/francodeguzman/30min. Look forward to chatting!

Reply by an intermediary
from The University of Chicago in Chicago, IL, USA

Both ^redacted‌ and ^redacted‌ responses are thorough. In addition, below is an option that may work. In ALL my deals, we include WC in the price. SBA funds that and hence the major need for liquidity is funded. But businesses often need additional liquidity b/c of monthly variations. In such situations, lender may be willing to provide a line of credit (most of them call is a "working capital line"). This amount can be in addition to the $5 M SBA cap.

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