Does a co-borrower on an SBA note also sign a guarantee?
Short answer
No. A person who signs the note as a borrower in an individual capacity does not also have to execute a personal guaranty. Source: SOP 50 10 8.1, Sec. A, Ch. 5, Para. A.1.a.
No. SOP 50 10 8.1, Sec. A, Ch. 5, Para. A.1.a, says a person who signs the note as a borrower in an individual capacity need not also execute a personal guaranty. The same language appears for Eligible Passive Company structures (Sec. A, Ch. 2, Para. A.1).
That is not a lighter obligation. As a borrower you owe the debt directly.
When individuals become co-borrowers
Appendix 15 makes individuals co-borrowers in several business purchases:
- A person buying 100% of a small business signs with the business as co-borrowers. The note must be signed jointly and severally (App. 15, Para. A.1.a).
- When owners buy out another owner, the business and the buying owners must be co-borrowers (App. 15, Para. A.1.c).
- In a partial change of ownership, every new direct or indirect owner must be a co-borrower, even at 1%. Indirect owners must also personally guarantee (App. 15, Para. A.1.c.ii).
A 7(a) loan cannot be made solely to an individual. The small business must be the borrower or a co-borrower (App. 15, Para. A).
Collateral follows co-borrowers
On a business purchase loan that is not fully secured, the lender must take available equity in a co-borrower's solely owned real estate (App. 15, Para. C.3.d).
Personal financial statement requirements are separate, so ask your lender what it needs from each co-borrower.
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