09 Sep 23

I Am Just A Part Owner In The Business Will The Sba Require Me To Sign A Guarantee On The Loan

| by

Last Updated on: 9th September 2023, 04:39 pm

I Am Just A Part Owner In The Business Will The Sba Require Me To Sign A Guarantee On The Loan

The Small Business Administration (SBA) frequently requires personal guarantees from business owners applying for SBA-backed loans. However, the specifics depend on the loan amount and the individual’s ownership stake. This article will examine SBA loan guarantees in depth, including relevant laws, implications, defenses, and more.

SBA Loan Guarantee Requirements

The SBA guarantees loans made by approved lenders to small businesses that would otherwise struggle to obtain financing. According to SBA regulations, lenders must obtain “unlimited, unconditional personal guarantees from all owners of 20% or more of the small business” for SBA-backed loans over $25,000

For example, if you own 25% of a business applying for a $100,000 SBA loan, you would likely have to provide an unlimited personal guarantee. This means the lender can pursue your personal assets if the business defaults.The SBA considers spouses jointly owning 20% or more of a business to be co-owners for guarantee purposes

So if you and your spouse each own 10%, you would both need to guarantee the loan.While the 20% threshold is common, lenders have discretion in setting guarantee requirements. They may request limited guarantees from owners with less than 20% stakes, or unlimited guarantees from all owners regardless of ownership percentage

Implications of Personal Guarantees

Signing a personal guarantee on an SBA loan carries significant financial risks. If the business defaults, the lender can seize your personal assets to recover losses. This includes bank accounts, investments, real estate, and other valuables.Personal bankruptcy does not discharge responsibility for an SBA loan guarantee

4. The lender can continue pursuing your assets unless the SBA releases you from liability.Guarantors also take on the burden of business debt. Unpaid balances reduce how much guarantors can borrow for personal needs. Potential lenders may view guarantors as higher credit risks.On the positive side, guarantees give lenders confidence in the borrower’s commitment. This makes lenders more willing to approve financing. Guarantees also allow those with limited business assets to qualify for larger SBA loans.

Legal Defenses Against Guarantee Enforcement

If your business defaults, you have several legal defenses to reduce guarantee liability.

Lender Misconduct: Lenders must comply with SBA regulations during loan origination, servicing, and liquidation

You may contest the guarantee if the lender failed to follow requirements. For example, if the lender did not properly service the loan before default.

Improper Guarantee Language: Guarantee wording must adhere to SBA standards. You could try to void the guarantee if the language improperly expands your liability beyond SBA limits.

Statute of Limitations: Lenders have 6 years to enforce SBA loan guarantees after loan maturity or acceleration. Guarantors can avoid liability if the lender missed this deadline.
SBA Release: The SBA may relieve guarantors of liability if the lender acted in bad faith or did not mitigate losses after default. You could request SBA release based on such lender shortcomings.
Settlement: Some guarantors negotiate a settlement for pennies on the dollar after default. Settlements release guarantors from further liability. However, the lender must agree to settlement terms.

Key Takeaways

  • SBA loan guarantees are common requirements, especially from owners with 20%+ stakes.
  • Guarantees allow lenders to seize personal assets if the business defaults.
  • Legal defenses like lender misconduct and improper language can contest guarantees.
  • Settlements after default may release guarantors at a fraction of liability.
  • Consult an attorney to understand guarantee implications before signing.


While personal guarantees are common SBA loan requirements, guarantors have defenses against blanket liability if their business defaults. Consult an attorney to fully understand the implications before signing a guarantee agreement. With proper precautions, guarantees can provide small business owners with access to financing that may be otherwise unavailable.