Question about SBA Collateral Requirements
July 23, 2024
by a searcher from Columbia University - Columbia Business School in New York, USA
Has anyone used successful strategies to minimize the personal assets that are subject to the lien requirement that collateralizes the SBA7(a) loan? If a Buyer puts his/her home in their spouse's name would this successfully sidestep the SBA's rule on lien attachment of the Buyer's home? Assume the spouse is not named as a co-Buyer of the business. Appreciate any insights from the community on this topic.
Thanks,
Rich
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
1) There is a six month look back to a change of ownership on a house. So if you move it into your spouses name they will look back six months. So be sure you have enough time before moving forward with your first deal.
2) If you happen to live in Texas, there is a homestead rule in Texas that protects your house. So you do not need to worry about it in Texas.
3) You can go take out a home equity loan on your house. So long as you have less than 25% equity in your home, the lender is not required to take it as additional collateral. Even if the home equity is not drawn, the lenders count available debt between your first mortgage and home equity loan when calculating the available equity.
4) The SBA does require you complete a personal financial statement that is signed by both you and your spouse. That is done to verify joint assets. That does not mean your spouse will be required to sign the personal guarantee. So long as she has no ownership in the business the lender cannot require her to sign a guarantee. Any assets that are held in your wife's name alone are not part of your guarantee.
5) Retirement assets are protected from personal guarantees.
Please let me know if you would like to discuss further. You can reach me here or directly at redacted Good luck.
from University of Texas at Austin
Took out an SBA loan along with a seller note with a personal guarantee. Unfortunately, I had to default on both when the industry took a downturn. I have since restructured the company and was able to cram down the notes without the investors losing any equity. Happy to share my story about the process and what I experienced.
Best,