Who Is Required To Guaranty SBA Loan
It’s important to understand that the applicant or borrower of an SBA guaranteed loan is the business, not the individual owners of the business.
Therefore, the business is primarily responsible to pay back the loan which is why this repayment source is referred to as the primary source of repayment.
The secondary source of repayment is often in the form of assets owned by the principal owners of the business which is defined as any owner owning 20% or more of the borrowing entity.
In order for the lender to attach those assets as security to the loan they require the owners to personally guarantee the loan on behalf of the applicant business in case the applicant business defaults due to its inability to repay the loan for whatever reason.
Personal guarantees are also important when determining whether cash flow is sufficient to repay the loan.
For example in the case where the primary source of repayment is weak it is possible to enlist the personal guarantee of third parties, such as spouses that allow their income to be used to strengthen the secondary source of repayment mitigating a weak primary source of repayment.
In laymen’s terms this means that the third party guarantor, often a spouse, can turn a decline into an approval.
My SBA Loan Pro
The My SBA Loan Pro Podcast is hosted by Your SBA Loan Pro, Ryan Smith. In each episode Ryan provides valuable information and best practices regarding the SBA loan program.
Each episode is approximately one minute in length and addresses topics related specifically to SBA 7(a) and 504 loan programs to purchase real estate, acquire a business or franchise and obtain working capital.
You’re encouraged to listen and subscribe to ensure you’re notified each time a new episode is available. Ryan publishes a new episode weekly on Tuesday mornings, unless he’s kidnapped to a deserted island of course.