Lately the question of affiliation and who has to personally guaranty an SBA Loan has become more gray. Affiliation has always been more subjective than most rules in SBA lending, but personal guarantees were pretty clear - 20% ownership or more per household you have to guaranty the loan.
Recently though the SBA has made a more direct correlation between the amount and percentage of money injected into a deal by minority investors and control. Information relayed by the SBA at regional and national conventions, indicates that minority owners have investments in multiple companies that utilize the SBA program and that the overall SBA borrowings by these companies far exceed the $5,000,000 cap. Additionally small groups of investors are potentially structuring ownership to circumvent the SBA limits. This structuring creates an “Identity of Interest” and affiliation in the eyes of the SBA. This is not the intent of the program.
There is no easy resolution to the issue. The difficulty with a hard and fast rule specific to the percentage of injection is that it would negatively impact the ability of a borrower without the required 10% injection to find investors willing to guaranty the whole loan on top of contributing the injection funds. Additionally, it now forces that investor into an increased level of control due to their liability.
Our best practices have changed to include an owner questionnaire completed by each non-guarantor owner addressing their ownership in any other businesses and if those businesses have any existing SBA debt. If we have significantly disproportionate injection from investors that may warrant the SBA requiring a personal guaranty of investors despite their ownership being below the 20% threshhold, we are sending loans Standard Processing to get SBA concurrence.
Stay tuned for updates as soon as we get direction from the SBA.