Spouse/Partner as guarantor on SBA 7a?
April 14, 2023
by a searcher from University of Pennsylvania - The Wharton School in Portland, ME, USA
Hi all,
How beneficial is it from a personal finance standpoint to have your partner avoid being a guarantor on an SBA loan. Just became aware of this possibility in my deal but it seems somewhat meaningless as our assets are jointly owned. Would she just not have to file BK in a worst case scenario? Any insights appreciated!
Tom
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
If the SBA seeks additional collateral and you have equity in a home they ask for a lien on that is owned jointly with your spouse, then your spouse would need to sign a limited guarantee related to the pledge of the equity in the home. That allows the SBA to have a lien on that home but no other personal assets owned by the spouse would be included.
If your spouse has any ownership in the business, then they would be required to guarantee the loan even if that ownership is below the 20% minimum because your joint household exposure is above the 20% with both of you as owners.
Now sometimes there are reasons to add the spouse as a guarantor. First, if your spouse has outside income that helps with the global cash flow required to approve the loan, the only way for a lender to include that outside income is if the spouse signs a personal guarantee. This can help you get the loan qualified you may not have otherwise been able to get done. Secondly, some lenders will ask for additional guarantor support. If you spouse has outside assets and income that satisfies what the lender is looking for, then including your spouse as a guarantor may help you get the loan across the finish line. I would say I see spouses end up guarantying SBA loans roughly 50% of the time when there is only one owner. Typically if there are multiple primary owners on a business that are unrelated, we only see them and we do not see the spouses involved (other than on a limited basis if a pledge of a personal residence is involved as discussed above).
As for risks of having a spouse sign a personal guarantee, anytime anyone signs a personal guarantee there are always risks. You must weigh the risk / reward scenario before doing so. If most of your assets are already going into the transaction, then there is probably not a huge risk in having your spouse sign as well. But if your spouse has separate assets, it does create additional exposure for you. Usually if there is a default on an SBA loan, most Borrowers will do an "Offer & Compromise" where they will seek to resolve the debt with the Bank and SBA by making an offer and helping to work through liquidation. If the lender accepts the offer it will often relieve the Guarantors of their guarantee exposure. However, there is no guarantee the SBA or lender will accept an offer. If you do not end up with much in the way of assets post liquidation, then many people file personal bankruptcy to get out of the debt. However, even if you file personal bankruptcy, there are still ramifications. You lose your ability to borrow money from the government in the future if the government takes a loss on you from an SBA loan, and you have the other credit issues that go along with a bankruptcy. So if you can keep a spouse out, only having one family member file the personal bankruptcy can make a recovery process much easier.
I am more than happy to discuss your personal situation at any time. You can ping me here or reach me directly at redacted Good luck with your search.
from University of Pennsylvania in Atlanta, GA, USA
Spouse is not PGing. All assets with your name on them, including joint assets, can be subject to forced sale for repayment. You would have to file bankruptcy, but not your spouse.
Spouse is PGing. All assets with your or your spouse's name, included joint assets, can be subject to forced sale for repayment. You would both have to file bankruptcy.
Some states have 'community property' laws in which pretty much all assets and debts acquired during the marriage are considered joint, regardless of whose name is on them.
If the lender is not requiring a spousal guarantee, I see no upside for you in providing one.
I am interested in this topic as well and am sharing my current understanding based on what I have read, happy to be corrected if my understanding is off.
Disclaimer: I am not a lawyer and this is not legal advice, best to consult your own attorney.