SBA rules · SOP 50 10 8.1
Does an SBA loan require a personal guarantee?
Yes, every SBA loan requires a guaranty from at least one individual or entity, and an unlimited full personal guaranty is mandatory for any individual who owns 20% or more of the applicant.
Quoted from SBA SOP 50 10 8.1Every quote checked word for word
In detail
- Mandatory minimum guaranty: Each loan must be guaranteed by at least one individual or entity, and if no single owner holds 20% or more of the applicant, at least one owner must provide a full unconditional guaranty.
- Owners of 20% or more: Any individual with direct or indirect ownership of 20% or more of the applicant must provide an unlimited full guaranty, unless they signed the note as a borrower in an individual capacity. All entities holding 20% or more direct or indirect ownership must also provide an unlimited full guaranty.
- Spousal ownership rule: Each spouse owning less than 20% must personally guarantee the loan in full when the combined ownership interest of both spouses and minor children equals 20% or more.
- Trusts, EPCs, and plan sponsors: When a trust holds 20% or more of the business, the trust and the trustor must personally guarantee the loan. In an EPC/OC transaction, each holder of a 20% or greater interest in either the EPC or the OC must guarantee. In businesses owned by a 401(k) or ROBS plan, the plan sponsor must provide a full unconditional guaranty regardless of individual ownership interest.
- Six-month lookback and discretionary guarantors: Any person subject to the guaranty requirement within six months prior to the loan application remains subject to it unless they completely divested prior to application. In addition, SBA or the lender may require minority owners, key employees, or management entities to guarantee the loan when deemed necessary for credit reasons.
The source
What the SOP says
“Each loan must be guaranteed by at least one individual or entity. If no one individual or entity is a direct and/or indirect owner of 20% or more of the Applicant, at least one of the owners must provide a full unconditional guaranty.
“Any individual who has direct and/or indirect ownership of 20% or more of an Applicant must provide an unlimited full guaranty.
“If a person has executed the Note as a Borrower in an individual capacity, that person does not also have to execute a personal guaranty.
“Each spouse owning less than 20% of an Applicant must personally guarantee the loan in full when the combined ownership interest of both spouses and minor children is 20% or more.
“All entities that have direct and/or indirect ownership of 20% or more of an Applicant must provide an unlimited full guaranty.
“In addition, when a trust guaranty is required, the Trustor must also personally guarantee the loan.
“Each holder of an ownership interest constituting at least 20% of either the EPC or the OC(s) must guarantee the loan (if the holder is a trust, then the Trustee shall execute the guarantee on behalf of the trust).
“Obtain the full unconditional guaranty of the sponsor(s) of the 401(k) plan regardless of the sponsor’s individual ownership interest in the Applicant concern.
“Any Person (as defined in 13 CFR 120.10) subject to the guaranty requirements 6 months prior to the date of the loan application would continue to be subject to the requirements even if that Person has changed their ownership interest to less than 20%.
“When deemed necessary for credit or other reasons, SBA or, for a loan processed on a delegated basis, the SBA Lender, may require other appropriate individuals or entities to provide full or limited guaranties of the loan without regard to the percentage of their ownership interests, if any.
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Related reading
This page quotes the SBA's Standard Operating Procedure 50 10 8.1. Lenders can ask for more than the SBA minimum. It is general information, not a loan approval or legal advice.