SBA Personal Guarantee

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April 07, 2024

by a searcher from Florida State University in Delray Beach, FL, USA

Any stories of business going south post acquisition and the business ultimately shutting/winding down? Thinking of a worst case scenario and if/how anyone handled it relative to the SBA personal guarantee (if SBA financing was used). There is only so much risk you can structure away via terms - the business still needs to perform to a minimum threshold so just curious if anyone has experienced a significant drop-off in business performance for something that could not have been mitigated.

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Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
I would be happy to have a discussion and go over how things work in a liquidation scenario with an SBA loan. We have seen some of them over our career for sure. One thing to keep in mind up front is that the SBA does provide for an "Offer and Compromise" where you can make an offer to try and settle the loan at liquidation. This often involves you providing updated financial information and then making some sort of payment to settle your personal guarantee and get released from it. It ultimately has to be approved by the lender and SBA, but unless you have substantial outside assets that are not protected (retirement assets are protected by federal law), then historically the SBA and lender will look to settle versus pursuing you on your guarantee. Even if the lender were to pursue you, the SBA would be deemed an unsecured creditor, and often times a bankruptcy will wipe them out. I know that is not the best case scenario, but it is always an option.

If you have additional questions or would like to walk through it in more detail you can reach me here or at redacted
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Reply by a searcher
from Harvard University in Nashville, TN, USA
Definitely +1 on ^redacted‌'s comment on ^redacted‌'s episode with Philip Blackett (as well as Monte Marcum, John Ikalowych).
May be worth also understanding the "messy middle" outcome in SMB in addition to the downside case. Stanford study may be a bit misleading on the "success" rate when it doesn't necessarily account for the middling outcomes where you're barely making debt service payments:
https://bigdealsmallbusiness.substack.com/p/the-messy-middle-of-small-business
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