Do SBA Loans Require a Personal Guarantee?

Estimated read time 3 min read

Research shows that nearly one-third of all small businesses fail due to insufficient capital. If your business is running low on funds, you may want to consider a Small Business Administration (SBA) loan. Available at participating lenders, they are partially guaranteed by the SBA. They offer a convenient form of debt financing. Rather than jumping through all of the hoops required for a traditional business loan, you can obtain an SBA loan.

Do SBA Loans Require a Personal Guarantee?

Yes, SBA Loans Require an Unlimited Personal Guarantee

SBA loans, however, require an unlimited personal guarantee. There are limited personal guarantees, and there are unlimited personal guarantees. They both involve pledging or guaranteeing your own personal assets to obtain a business loan. If you’re unable to repay the business loan with your business’s assets, the lender may seek ownership of your personal assets.

Limited personal guarantees are simply capped, whereas unlimited personal guarantees are not capped. The lender can seek ownership of the full debt amount with an unlimited personal guarantee. Regardless, SBA loans require an unlimited personal guarantee.

Who Must Provide the Unlimited Personal Guarantee?

SBA loans often require an unlimited personal guarantee from multiple people. Assuming you are the sole owner and operator of your business, you can obtain an SBA loan without asking anyone else to make a personal guarantee. But if there are other individuals who own your business, they may have to make a personal guarantee as well.

According to the SBA, anyone with a 20% or greater ownership stake in the business must provide a personal guarantee when obtaining an SBA loan. If there are three other owners with a 20% or greater ownership stake in your business, for example, they will have to provide a personal guarantee as well.

What About Collateral?

In addition to an unlimited personal guarantee from all owners with a 20% of greater ownership stake, many SBA loans require collateral. Collateral consists of assets that you use to secure a loan. Small SBA loans with an amount less than $25,000 typically don’t require collateral. Larger SBA loans, though, do require collateral.

SBA loans are typically easier and faster to obtain than traditional business loans. Unbeknownst to many business owners, though, they still require a personal guarantee. SBA loans require an unlimited personal guarantee from all owners with a 20% or greater ownership stake, and many of them also require collateral.

This article was brought to you by Intrepid Private Capital Group, a Global Financial Services Company. For more information on startup and business funding, or to complete a funding application, please visit our website.

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