SBA 7(a) Collateral & Separate Property

April 04, 2023

by a searcher from The University of Michigan - Stephen M. Ross School of Business in Boulder, CO, USA

NOT LOOKING FOR COMMENTARY ON MARRIAGE/RELATIONSHIP AND HOW WE CHOOSE TO SPLIT THINGS - THANK YOU!

Is 100% of the real estate required as SBA 7(a) collateral if the collateral shortfall is greater than the equity in the primary residence?

I am married and signed a prenup. Through that agreement, my spouse and I each SEPARATELY own 50% of our primary residence and split the related mortgage. I received mixed messaging on whether my spouse's 50% (not marital property; spouse owns real estate separately) is required as collateral for an SBA 7(a) Loan. I alone have less than 25% equity in the primary residence.

If someone has a specific clause for me to look into, that would be very helpful. Thanks in advance!

Reply by a lender
from Sam Houston State University in 5324 Community Dr, Houston, TX 77005, USA

The SBA looks at spouses as one unit, even with the prenup agreement. If there is overall 25% equity in the property, it would need to be pledged and your wife would have to provide a limited guarantee, limited to her interest in the property. You will also have to provide a joint personal financial statement. I had a customer with a separation agreement with his spouse for over 20 years and the SBA said we still needed a joint PFS. If you have not identified a target yet, go get a HELOC so there is not sufficient equity to take a second lien.

Reply by a searcher
from Harvard University in Colorado Springs, CO, USA

I’m not sure if there are exceptions, but the way it seemed in my closing is that any personal assets of either spouse are fair game to the SBA in the event of failure to repay, without any way to shield any of them. Additionally, my wife had to sign an individual PG even though I own 100% of the business. Best of luck.

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