- May 22, 2018 at 6:36 pm #187084
I am the minority owner of a small business that required a significant SBA loan. A month before closing more money was needed to complete construction & open for business so my partner/lender requested my name on the loan. Now that the loan is at risk of default I have the most exposed assets. My question is should I have been required to become a co borrower even though the business plan the bank clearly states my minority ownership of 15%? Do I have legal grounds to have my personal guarantee removed?May 22, 2018 at 6:43 pm #196759
Dock David TreeceModerator
Thanks for the question. If you already signed a personal guarantee on your SBA loan, it’d probably be pretty tough to have it taken off. However, there are a few notes.
First, one of the big things that make SBA loans so attractive is that the SBA guarantees a portion of your loan. This means that – if your company were to default – you and your partners probably wouldn’t be personally responsible for the full loan amount. The amount that the SBA guarantees varies, so you’d need to check your loan documents.
Another item to consider is whether your current loan is in default because your business is struggling or for other reasons. For example, if one of your partners misappropriated loan funds, that may be cause for you to disclaim responsibility for the loan.
If, however, your business is actually doing well and you are falling behind on SBA loan payments for other reasons (a bad payment schedule, for example), then you might consider arranging new financing to pay off the old loan and move forward. You might also try contacting the SBA for a loan adjustment, but the odds of getting much relief probably aren’t that great.
Sorry to hear about your recent troubles. If you want to look at different kinds of SBA loans to see whether refinancing may be a good option, be sure to check out our article on the 6 Types of SBA Loans here: https://fitsmallbusiness.com/types-of-sba-loans/
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