Threading the needle

May 22, 2023

by a searcher from University of California, Berkeley in Sausalito, CA 94965, USA

At what point does the personal guarantee drop off and you can switch to something that is purely backed by the company financials? Right now I'm self funded on the search effort and have some capital to put towards equity. I'm trying to right size a deal so that my spouse feels comfortable with the risk of a failed job but doesn't fear the risk of losing our home. I'm getting the sense that I need to go tiny (<750 EV) or skip all the way up to something that is closer to 8m+ EV. Is there any way to thread the needle without taking on such a large amount of risk?

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

Hello Jonah. I would be happy to have a discussion this issue. But to be honest with you, if you are self-fund searcher and want a more conventional option like SBA or even a conventional bank deal, it really does not matter what you are looking at, traditional lenders are going to require a personal guarantee. I can tell you from my career in banking that the personal guarantee is not so much about having assets to chase (although if you have a lot of assets don't get me wrong, a lender can chase them if you default), but it is more about giving you a reason to do the right thing and work with the Bank. In situations where borrowers can just walk away, the Banks always take a much greater loss. When they can work through a liquidation with a Borrower, the loss is usually less.

If you are looking at the SBA loans, the SBA does require the pledge of outside assets to help support the loan, including equity in the home if you have 25% or more equity in the home. If that equity is eaten up by the first mortgage or an available home equity loan, then it is not available to access. If there is not sufficient equity available, the SBA does not require the Bank to take it as additional collateral.

If you wish to discuss your specific situation, I am more than happy to jump on a call. You can ping me here or directly at redacted

Reply by a searcher
from University of Minnesota in Marysville, WA, USA

Hey Jonah! Congrats on your search efforts! I just spoke with a lender recently who doesn't require personal guarantees. Their minimum loan amount is about $5M right now (which could be met with a $2M EBITDA business selling at a 3x multiple, for example, so you wouldn't have to go all the way to $8M EBITDA). Happy to make an introduction if that's of interest! You can message me here or email me at redacted

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