Can you carve specific assets out of guarantees on SBA loans?

April 10, 2020

by a searcher from Northwestern University - Kellogg School of Management in Austin, TX, USA

I have a very small (in equity % terms) equity stake in my family's business, and they would kill me if I pledged that equity in a personal guarantee for a loan. I'm fine pledging literally every other asset I own, but I'm wondering if SBA allows for any sort of carve-outs in personal guarantees.

1 Like

3 Replies

121 Views

Replies

Reply by an intermediary
from Boise State University in 800 W Main St, Boise, ID 83702, USA

SBA lenders and most commercial lenders aren't interested in taking the stock/equity of privately held companies as collateral. Private company equity is not liquid (ie can't be sold quickly easily through a public market).. However, you do have to disclose your ownership interests in any other companies. This is required per SBA rules to determine "size standards" under the Affiliate rule. If, for example, your family company is larger than SBA size standards that may preclude you from getting an SBA loan for another business. However, the size standards are pretty flexible. Check with your SBA lender.

Keep in mind, a personal guarantee is NOT the same thing as pledging collateral. A personal guarantee is a promise to pay if the business entity can't/won't pay back the loan. SBA loans require a personal guarantee from owners AND a pledge off all available collateral (generally from the business entity that is applying for the loan). These are two different things. Collateral consists of tangible assets - real estate (can be 2nd or even 3rd lien position), vehicles, equipment, and COULD BE publicly traded stock (think Apple, HomeDepot, etc.) but NOT privately owned business equity such as your family business. Hope that helps.

Reply by a lender
from University of Missouri in St. Louis, MO, USA

No, you can’t carve out a PG that way. However, not sure how that would factor in. Would be tough for a lender to put any pressure on you for a separate business with minimal ownership. Also pledge of collateral would only include real estate you own with >25% equity. So it would be minimal risk if any based on what you have said.

+1 more reply.

Join the discussion