SBA Loan Expert Question

February 10, 2023

by a searcher from Salisbury University - Franklin P. Perdue School of Business in Virginia Beach, VA, USA

I'm looking to acquire a business with lots of potential and assume the debt already on the books for the business. The debt is an SBA Loan. The current owner is burnt out & doesn't see the business surviving unless there are some drastic improvements made. Myself and my management team know exactly how to turn this business around.

The problem: The SBA Loan

Would we need to reapply for the loan to be maintained "as is" once the transfer of interest occurs?
Would we need to assume the Personal Guarantee on the SBA Loan?

If so, both of these are deal breakers for us

The seller's attorney has indicated that the SBA will need to be notified but I'm not sure if this also means that we'll need to apply as the new owners & sign a PG.

If so, Is there anyway to work around this?

Thanks for the help

Reply by a searcher
from Harvard University in Boston, MA, USA

You mentioned before that this would be a cash-light acquisition. Another option would be to have new equity issued to you that takes current ownership to a tiny percentage (or options/contingent equity that you earn by turning the company around). This could allow the SBA loan to stay in place with the current guarantees but provide you with economically nearly the same outcome as a purchase. I don't know what's in the loan docs, this might create a technical default, but if it is just a technical default and there's never an economic default the lender might not care or want to do anything. What I've been told by advisors is "the SBA **would like** future investors/shareholders over 20% to add their guarantee to the loan, but they can't force them"

A major downside to the "dilute to acquire" option vs a standard asset purchase is that there is no NewCo and the company will remain fully liable for everything that happened before you became the owner, similar to a stock purchase.

Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

I agree with the other comments posted on here. The existing lender would need to work with you to assume the SBA loan. I have not seen it happen very often. They would also have to agree to release the existing Guarantor. If the Guarantor has personal collateral involved in the deal (which sometimes happens with SBA loans), it is unlikely the Bank will release that collateral unless there is replacement collateral. Also, any new owner would be required to fully guarantee the loan. If you would like to discuss further you can reach me here or directly at redacted

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