Non-SBA Bank Debt Corporate Guarantee

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by a searcher from University of Pennsylvania - The Wharton School
in Toronto, ON, Canada

3yrs ago

Non-SBA Bank Debt Corporate Guarantee

I'm working towards a term sheet and was wondering if it's typical for a bank to ask for a corporate guarantee? Note this is for a non-SBA term loan. What are the potential downsides for a newly incorporated entity?

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reply by a lender 3yrs ago
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

I agree with Juan. We do quite a bit of non-sba business acquisition financing, and usually the lenders will require a personal guarantee. If the acquisition target is going to continue to exist but ownership is in the name of another entity, then they will almost always require the guarantee of the purchasing entity. This is to ensure that they have the ownership entity tied into the deal. If you have a big fund or multiple companies you operate, they will also often want the corporate guarantee for outside support. Except for the cases where we see a large strong PE firm doing a deal conventionally, or a really low LTV/LTC with hard collateral backing most of the loan (meaning little goodwill exposure), we typically see lenders require a personal guarantee for all 20% or greater owners, just like the SBA does. I am more than happy to discuss in more detail at any time at redacted

reply by an investor 3yrs ago
from Hobart and William Smith Colleges in Dorset, VT, USA

Banks will ask but not all banks will ask so you can use this as a negotiating point to get rid of it. You can also break this down logically (and I know I have a thread somewhere on this). They don't really want a PG on you, they want a ring in your nose they can pull on when times get tough. PG's are limited legally and practically but almost unlimited emotionally. You can solve the bank's underwriting logically where they get what they want without the PG, and you sleep well at night.