Can I reduce my ownership to avoid the SBA personal guarantee?
Short answer
Not by trimming your stake within 6 months before applying. You stay subject to the guaranty rule unless you divest completely and cut all ties with the business for the life of the loan. Source: SOP 50 10 8.1, Sec. A, Ch. 5, Para. A.4.
Not by trimming your stake shortly before you apply. SOP 50 10 8.1, Sec. A, Ch. 5, Para. A.4, is the six-month lookback rule. A person subject to the guaranty rule 6 months before the application date stays subject to it, even with a smaller stake.
The exceptions
- Complete divestiture before the application date. You must give up all ownership and end any relationship with the applicant, including any associated Eligible Passive Company. That covers any capacity, including paid or unpaid employee, for the life of the 7(a) or 504 loan.
- Partial changes of ownership on 7(a) loans. Guaranty percentages are based on post-sale direct and indirect ownership. A seller who keeps a stake has special rules (App. 15, Para. A.1.c.ii).
A separate rule for Ineligible Persons
The SOP carves out Ineligible Persons under the citizenship rules. For those owners, the test is complete divestiture before the SBA loan number is issued (Sec. A, Ch. 1, Para. F; SBA Information Notice 5000-877673, Question 3).
Even outside the window
Dropping your stake more than 6 months ahead may still not end the question. A lender may require a guaranty from anyone, regardless of ownership, when needed for credit or other reasons (Para. A.1.c).
Spouses
Moving shares to a spouse or minor children does not help if the combined stake is 20% or more (Para. A.2).
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