Non-SBA Bank Debt Corporate Guarantee

July 25, 2022

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

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
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
from University of Miami in New York, NY, USA

Hey Jack. Most non-SBA lenders funding search deals will still ask for a personal guarantee from the searcher, with a few exceptions. When you say "corporate guarantee," I imagine you're referring to a guarantee from the LLC/entity you're using to acquiring the business? That is much better than a personal guarantee and the risk it entails would depend on what assets you have in that entity (if you have none, then the lender will likely catch on to it and ask for a guarantee further up the chain).

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