Banks that do not Require Personal Guarantee
February 13, 2023
by a searcher from Kettering University (GMI) in Detroit Metropolitan Area, MI, USA
I am interested if anyone knows of banks that do not require a PG? What I seem to find is that SBA lenders cannot get much of a PG from young searchers who do not have a lot of personal assets. However, for mature searchers, those same banks would like to lock up everything that has been built over time which seems inconsistent in the treatment.
from University of California, Santa Barbara in Los Angeles, CA, USA
1. Most of the people on this website haven’t seen an economic downturn or SBA interest rates that approach mezz financing rates
2. Things happen that are completely out of the businesses control like Covid
3. Risk is a four letter word, minimize it. Do the PG fanboi’s go all in every hand of poker?
Please try to help the person with the question they actually asked. You don’t know their life or situation. Give them credit for having thought through that already.
in United States
The SBA SOP requires a personal guarantee from all owners with 20% or more equity in the business. In some cases, even the spouse of the proposed owner will need to sign a limited personal guaranty for the equity portion of the homestead residence.
It is essential to understand that some front-end SBA lenders or business brokers speaking as an SBA lender may not have these critical conversations with potential buyers early on, leading to unexpected roadblocks in the acquisition process.
Transparency, experience, and SBA education of front-end bank lenders must ensure that all parties fully understand the terms and expectations of the bank loan structure backed by the SBA out of the initial conversation gates.
***Side note - remember that the SBA doesn’t provide the capital; the various bank and nonbank lenders do. These lenders must follow SBA SOP to ensure that the SBA guaranty to the bank is not at risk should the bank loan go belly up.
Each bank and nonbank lenders have in-house business acquisition lending credit guidelines written to be followed by their underwriters on top of the SBA SOP that can challenge navigating loan approvals and best structures as a business buyer/borrower.
I have witnessed bank lenders require a personal guaranty on less than 20% of owners based on the risk presented in the deal. This was a specific bank credit policy. Some banks passed on these deals, period — whereas other banks were comfortable to move forward with credit approval if the less than 20% owner would offer a personal guaranty to mitigate risk in the deals.
SBA SOP credit policy and eligibility "is what it is" - no exception.
Bank and nonbank SBA 7(a) change of business ownership loan project credit policies and credit appetites are ALL different and change often, making it challenging and highly time-consuming for business buyers to navigate bank change of business ownership loan projects, backed by the SBA.
Thank you ^redacted