Aquisition loan options that do NOT require a personal guarrantee?

May 05, 2018

by a searcher in Loudon, NH, USA

It is my understanding that SBA 7a loans typically want the borrow to provide a personal guarantee and put a lien on a primary residence. What loan options exist where one could borrow for an acquisition and NOT have to provide a personal guarantee or have your home attached? Are there certain loan options besides the SBA loans that could be considered? How do the loan options vary based on different industries? I would think that a business with assets like real estate and equipment might have additional financing options as compared to some service-based businesses. Thanks!

Reply by a searcher
from The University of Michigan in 1075 Gills Dr, Orlando, FL 32824, USA

Link, there are other options. You can get a traditional bank loan, although this will be more challenging for an asset light business. These loans are typically 5 years so you would only be able to take half as much as an SBA loan. You could look at mezzanine debt which will carry higher interest rates. There's of a course a seller's note which may or may not require a personal guarantee. Regarding the SBA loan and the home lien, they only put a lien on if you have 25% or more equity in your house. If you do have that much equity you can take out a home equity loan to reduce your equity and once the transaction closes you can pay that loan off.

Reply by a searcher
from University of Toledo in Shaker Heights, OH, USA

The most accurate "general answer" is yes. The key point is that one should adjust their search parameter to industries and deal points that lead to over-collateralization and DSCR for the financial sponsor of at least 5.0X. If you want to converse more, pm me.

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