SBA Investors as Co-Borrower on Stock Purchases?

searcher profile

May 16, 2024

by a searcher from University of Texas at Austin in Austin, TX, USA

EDIT: Thanks everyone for the feedback. I knew this was more-or-less a play when they pulled it and I had multiple other banks with term sheets waiting in case of a scenario like this. They went back to their legal team and the LO has advised the structure works, I'm waiting on written confirmation they won't try and pull this at closing though.


ORIGINAL: I have a loan coming out of underwriting with capital raised on a stock purchase deal that the bank is asking for investors (ranging from 1-10% ownership of the acquisition vehicle) to be co-borrowers on.

Their argument is this is due to SBA eligibility on stock purchases, however I was under the impression that only investors with greater than 20% of ownership would be required to be on the loan.

Does anyone have guidance on if this is normal? Obviously, this will kill the deal with my investors if they are on the hook for the loan as well, and the deal only works as stock purchase due to customer contracts with long approval timelines.

0
16
114
Replies
16
commentor profile
Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
^redacted‌ thank you for the tag. The SBA does not require investors that own less than 20% to sign a personal guarantee. However, that does not mean a lender cannot require additional support for a deal. However, I rarely see them require a 10% equity investor to guarantee. If that was going to be the case they should have let you know way earlier in the process. Happy to take a look and see if we can provide any assistance. You can reach me here or directly at redacted
commentor profile
Reply by a searcher
in Zwolle, Nederland
Had the same once, hours before the payment. Very nasty. What we did is sign ourselves only. We knew the cashflow prognose. Afterwards we had a simular situation again, then we negociated a very limited contract liability that was overseeable (maybe this is a solution too if there are no other possibilities). I dont like these last minute changes, its a reason we are now setting up small fund ourselves. Hope you have time and can find another bank. Wishing you success.
commentor profile
+14 more replies.
Join the discussion