Armanino Blog
SBA Loans: The Basics of Personal Guarantees
by Robert E Tuvell
March 25, 2020

U.S. Small Business Administration (SBA) loans require a personal guarantee from anyone who owns 20% or more of a business. When you sign a personal guarantee, you authorize the lender to seize any of your personal assets to repay the loan, if business assets aren’t sufficient to cover loan payments. The two most common types of SBA loan personal guarantees are limited and unlimited:

Unlimited Personal Guarantee

Business owners who own 20% or more of the business will sign an unlimited personal guarantee. This means you are agreeing to let the lender recover 100% of the outstanding loan balance. These guarantees are called “unlimited” for a reason. They essentially offer you zero financial protection if your business isn’t as successful as planned. When providing an unlimited personal guarantee, you’ll be asked to complete and sign SBA Form 148 along with the rest of your SBA loan application.

Limited Personal Guarantee

Limited guarantees set a dollar limit or agreed collateral value on what can be collected from your personal assets if your business defaults on its loan. This offers more protection for your personal assets. Business owners who own 20% or less of the business might be able to provide this type of guarantee. They require SBA Form 148L.

If you provide a limited personal guarantee, your responsibility for repaying the loan can be limited in one of several ways:

  • Balance Reduction – In this case, the business owner personally guarantees the SBA loan until the balances reaches a certain amount. For example, the business owner who signs a personal guarantee on a $100,000 SBA loan might be released from liability when the total balance of the loan (principal plus interest) reaches $20,000.
  • Principal Reduction – This is the same as balance reduction, except principal balance is what matters. Interest isn’t included when determining the business owner’s liability for repayment.
  • Time-Bound Liability – In this case, the business owner personally guarantees the loan for a specific number of years, after which they are released from responsibility.
  • Maximum Liability – In this case, the business owner knows from the beginning the maximum amount they might owe if the business defaults. For instance, liability on a $100,000 loan might be limited to $30,000 for a particular business owner.
  • Percentage Liability – The amount for which the business is liable will be a fixed percentage of the loan, usually proportionate to the person’s stake in the company.

We Can Help

There are a number of ways Armanino can help support you through the SBA loan process. If you have questions or concerns related to SBA loans, don’t hesitate to reach out to our COVID-19 Rapid Response Team.

March 25, 2020

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