Avoid personal guarantee?

June 02, 2025

by a searcher from University of Pennsylvania - Philadelphia in New York, NY, USA

As title suggests, are there any alterantives to raising debt that's linked to a personal guarantee? For context: * Conservative capital structure: I'm not looking to "max lever" my acquisition (i.e., fine with lower debt levels as multiple of EBITDA or LTV) * Other terms: I'm fine with paying higher rate or incurring worse terms (e.g., financial covenant) to avoid PG * Business: High quality business with ~$1-2m EBITDA, recurring revenues, etc. (i.e., not buying a B-quality business for a low price in a "max leverage" context) * Acquiror: Acquiror has perfect personal credit and is generally underwriteable (e.g., high integrity and competence) * Deal type: Self-funded search in which acquiror is funding a significant portion of the equity check (~$1.5m) Side notes: * I fully understand why lenders highly value PG's. I'm just very focused on fleshing out alternatives to PG's, as I genuinely dread the downside (but real...) scenario of a bank going after my family's personal assets. * I also understand that the vast majority of searchers use SBA debt with PG's - goal of this post is to flesh out what it would take to not do that

Reply by a searcher
from Virginia Polytechnic Institute and State University (Virginia Tech) in Blacksburg, VA, USA

It’s very unlikely that you’ll be able to avoid a PG. If you can’t get comfortable with it, I’d recommend you not waste your time on M&A.

Reply by an investor
from McGill University in San Diego, CA, USA

Yes, you can avoid a personal guarantee — but you’ll likely need to make tradeoffs in pricing, lender type, or structure. Since you’re self-funded, writing a meaningful equity check, and not trying to max out leverage, you’re already in a strong negotiating position. 1. Use a Non-Recourse SBIC Loan Some SBICs will structure deals without a personal guarantee, especially if: You’re putting in a significant equity check (as you are); The business has strong cash flow and low capex; They’re taking an equity kicker (e.g., warrants or small preferred equity stake) 2. Structure a Seller Note with Contingent Upside Use a large seller note with a performance kicker (e.g., earnout or PIK coupon), keeping senior debt low or non-existent. Some sellers will: * Take 40–60% of the deal value as a note * Forgo a PG if the buyer has real skin in the game 3. Partner with Equity Investors Who Don't Require a PG If you bring in outside equity (even a minority partner), some institutional debt providers will get comfortable without a guarantee: Avoiding a PG is possible — but you have to pay for the flexibility. If you’re comfortable with: *Paying a higher rate *Taking less leverage * Sharing upside or subordinating the seller note

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