Do Equity investors have to provide a personal guarantee on an SBA Loan?

October 07, 2021

by a searcher from Georgetown University in Minneapolis, MN, USA

I have private investors that are interested in helping to fund my acquisition, which is great. I plan on funding the rest of the acquisition with an SBA loan. However, I read in the SBA deal terms something about a requirement for anyone who owns more than 20% of the equity to also sign a Personal Guarantee. My investors are interested in investing... but less excited about the idea of providing a PG on a business that they aren't actively involved in operating. I know I will have to sign a PG. Does anyone know for sure if outside investors have to sign one as well?

Reply by an investor
from Northwestern University in Boulder, CO, USA

The SBA lenders among the community can chime in here with more specific details; however, anyone who owns more than a 20% interest in the company borrowing the SBA loan, or having operating control over it, must guarantee it. For this reason, most self-funded search investors would prefer not to cross either the ownership or operating control thresholds. It's more customary for acquiring entrepreneurs to raise capital from enough investors, and to structure their operating agreements in such a way, as to not require investor guarantees.

Reply by a searcher
from Georgetown University in Minneapolis, MN, USA

Thanks everyone for the helpful response. This community is great. It does seem a little counterintuitive on the SBA's part, as the lower the leverage percentage the lower the risk for them. But understanding this is important. Thanks all!

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