Understanding Debt Structure and Personal Guarantees

searcher profile

August 24, 2023

by a searcher from Northwestern University - Kellogg School of Management in Chicago, IL, USA

I am in the beginning phases of learning about search and evaluating options. After reading "On the Nature of Debt", I had a few questions about how deals are typically structured and how personal guarantees come into play.

It would be helpful to gain clarity on the following:

1. In a typical traditional search, what is common debt to equity ratio?
2. In a typical traditional search, do searchers frequently take on debt with personal guarantees?
If yes, how do you mitigate this? Are there scenarios (other than funding with no debt) where investors absorb the personal guarantee?

Would love links to any resources to help me learn more about this topic. Thank you.

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commentor profile
Reply by a searcher
from Southwestern University in Houston, TX, USA
Above a certain EBITDA, PGs are generally not required, but it's all up to the lender. And the SBA is a PG required scenario with no exceptions.

The only mitigation once there is a PG on play is to arrange your life to have no assets in your name, pay off the debt as quickly as possible, or settle into the warm, goey world of everything on the line-ness.
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Reply by a lender
from California State University, Sacramento in Seattle, WA, USA
If you’re considering the self funded path and SBA loans for financing, DM for links to attend my weekly office hours. We go over all things sba and loan structures. We also compare and contrast some aspects of conventional lending too. redacted
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