Experience with minority partners providing personal guarantee support?

searcher profile

September 29, 2020

by a searcher from New York University - Leonard N. Stern School of Business in Fairfield, CT, USA

Has anyone here worked with a minority equity partner who assumed the personal guarantee for an SBA loan or similar financing? Possibly even a back-to-back agreement where they support your personal guarantee to a third-party lender? If so it would be great to learn more about the structure you employed.

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commentor profile
Reply by a lender
from St. Leo College in Tampa, FL, USA
Hi Geoffrey, in regards to how it works with SBA it is certainly possible for a minority owner to offer a guarantee. However anyone who owns 20% or more of the borrowing entity will also be required to guarantee. That guarantee will be unlimited, joint and several, meaning they will be on the hook for the full loan amount. In the event no one owns 20% or more then one person could theoretically offer their guarantee on behalf of the group. At that point it is a credit decision for the bank whether or not they are comfortable with just the sole guarantor.
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Reply by a lender
from University of Missouri in St. Louis, MO, USA
This is at each banks discretion. On SBA deals the 20% is a hard rule. However a bank can require PGs if they feel the deal needs it. This is for SBA and non-SBA deals. In a lot of instances this would be a tight cash flow situation with a guarantor who has little to no personal liquidity. The additional guarantor can make a tough deal doable. However if the deal is strong enough then that would seem like overkill.
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