Avoiding personal guarantees for bank loans?

searcher profile

January 22, 2020

by a searcher from The University of Chicago - Booth School of Business in San Francisco, CA, USA

I am new to the search fund space, but my partner and I are looking to buy a service company $5M in annual revenue $1M in cash flow. Looking at 4-year loan pay-back period. So far banks require a Personal Guaranty. Are there lenders who will loan against solid equity contribution and strong cash flow?

3
9
441
Replies
9
commentor profile
Reply by a searcher
from University of Virginia in New York, NY, USA
Realistically no. There is just no incentive for a bank to make that trade. Best case is they make a few points off a small loan, worst case is that things go horribly wrong with no recourse and someone loses their job. You may be able to find a junior debt provider but the cost / benefit is not in your favor.

Why are you and your partner afraid of the PG? If you are willing to contribute 30%+ equity and believe in the viability of the business, aside from a horrific black swan event you should never have to worry about defaulting on the loan. SBA all day and spend a little more on good life insurance policies for the both of you.
commentor profile
Reply by a searcher
from Harvard University in Palo Alto, CA, USA
This is a great question as i haven’t been able to find a bank who will do SBA loans without a PG and/or a real estate lien on personal property so far . In addition, my understanding is that if the loan applicant has any real estate in their name, SBA would want a lien on it, Im glad to see a few responses here from potential lenders who feel comfortable with no PG and will follow up.
commentor profile
+7 more replies.
Join the discussion