To the SBA experts, if an acquisition is financed with the below sources, could the preferred stock investor be subject to a personal guarantee? Numbers are illustrative.
- 70% SBA loan
- 10% Seller note
- 10% Non-convertible preferred stock (with 1 preferred shareholder that IS NOT a common equity investor; cannot convert to common)
- 10% Common equity (with only 1 investor providing 100% of common)
And to be complete, can you confirm that if the preferred stock has a conversion feature, it could be considered common equity (similar to convertible debt) and would trigger a personal guarantee.
Thanks!
Does preferred stock count as common to SBA lenders and trigger a PG?
by a searcher from The University of Chicago - Booth School of Business
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You can have the stock setup to convert at a later date. You cannot have mandatory required payouts on the preferred stock. Payouts have to be subject to the senior debt. You also cannot have any future changes of ownership in place that would change the percentage of ownership unless that change states it cannot take place either without the SBA lender approval or after the SBA debt is repaid.
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