Personal Guarantee (Self-funded search)

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October 11, 2020

by a searcher from Harvard University - Harvard Business School in New York, NY, USA

Are there ways to avoid a personal guarantee if pursuing a self-funded search? Have heard there is an EBITDA threshold - wondering if that is true and if there are any other considerations. Thanks!

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Reply by a searcher
in Boston, MA, USA
As Adel mentioned, seems there's no way around the personal guarantee if you borrow under SBA 7(a).

Understand the reticence to take on the PG, but worth thinking about are the benefits of the SBA program - especially (IMO) a lack of maintenance covenants, lower rates, and potential for higher overall leverage ratios. What I've seen some do is get into the business under a loan with personal guarantee and, all things going well, recap to a different product without a PG within a few years.
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Reply by a lender
from University of Missouri in St. Louis, MO, USA
The main question is the value of a business without the owner. The reason middle market businesses (i.e. $5MM+ in ebitda) Don’t often require PGs is because the business is large enough to have value. Most small businesses need an owner at the helm or they start to deteriorate quickly. So most small businesses will require a PG, especially on a cash flow basis. There are options out there for no PGs but the costs traditionally make them unattractive
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