Illiquid investments - SBA/bank treatment
February 24, 2025
by a searcher in USA
How do banks/SBA handle illiquid investments when you are taking out a business loan? I've heard taking out a line of credit against your house (HELOC) can protect it in the event of a default. Trying to figure out what is at risk or safe in the event of default. Not planning to default, but also not wanting to bet the whole farm.
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
To provide a quick general summary here, technically anything you own is at risk via a personal guarantee. Typically retirement assets are protected from direct liens and protected in bankruptcy. But even if you have a home equity loan and you have equity loan and your home was not required to be pledged as additional collateral on an SBA 7A loan because you had less than 25% equity in the home at time of loan approval, in theory your equity is still at risk under a personal guarantee if there is a default, a collateral shortfall and the Bank decides to pursue you personally for that shortfall. They could get a judgement against you and then put that judgement against your home. I am not saying this to try and scare anyone, but just because individuals need to be aware of what is at risk. Generally speaking the Banks due to pursue guarantors hard unless they know there are assets they can collect on. But it is always a risk. Bankruptcy is also always an option if you the amount still owed well exceeds what assets you have. Again, happy to have a discussion.
from Northwestern University in Chicago, IL, USA