Are SBA Loans Personally Guaranteed?

Most SBA loans require a personal guarantee. Here's everything you need to know.
Jun 21, 2022

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A personal guarantee is a legal agreement between you and a lender that holds you personally responsible for your business’s debt in case of default. If your business can’t repay the loan, the lender can seize your personal assets to cover the debt and recoup its losses.

Many lenders require a personal guarantee because it helps mitigate the risk they face when issuing financing to small businesses. Here’s what you need to know about SBA loans and personal guarantees.

How Much Do You Need?

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Most SBA loans require a personal guarantee

SBA loans generally require an unlimited personal guarantee from anyone who owns 20% or more of the business

U.S. Small Business Administration. SOP 50 10 5(F) Lender and Development Company Loan Programs. Accessed Jun 14, 2022.
. Lenders may ask that other business owners — those who own 15% of the business, for example — provide a limited or unlimited personal guarantee as well.

SBA lenders are also required to get unlimited guarantees from:

  • Spouses who own 5% or more of the business when the combined ownership interest of both spouses is 20% or more.

  • Corporate entities that own 20% or more of the business.

  • Trusts that own 20% or more of the business.

  • Trustors, if the trust that owns 20% or more of the business is revocable.

If no single individual or entity owns 20% or more of the business, at least one of the owners must provide an unlimited personal guarantee.

Are SBA disaster loans personally guaranteed?

Although personal guarantees are needed for the most common Small Business Administration loan programs — SBA 7(a) loans, 504/CDC loans and microloans — they may not be required for SBA disaster loans. COVID-19 Economic Injury Disaster Loans, for example, only required personal guarantees for loan amounts over $200,000

Congressional Research Service. Small Business Administration: A Primer on Programs and Funding. Accessed Jun 14, 2022.
.

Other SBA disaster loans, including Home and Personal Property Loans and Business Physical Disaster Loans, don’t typically require collateral for loans of $25,000 or less. For loans of $25,000 or more, however, you may need to provide collateral or a personal guarantee.

Unlimited vs. limited personal guarantees

In most cases, you’ll need to provide an unlimited personal guarantee when applying for an SBA loan. Your lender, however, may ask for a limited personal guarantee from anyone who owns less than 20% of the business.

Here’s what you need to know about the differences between these two types of guarantees.

Unlimited personal guarantee

This agreement guarantees that you’ll pay back the loan in full if your business can’t pay. The lender is not required to seek payment from any other source before going to the business owner for repayment.

Lenders may use SBA Form 148 for this type of personal guarantee or their own equivalent form.

Limited personal guarantee

With a limited personal guarantee, if your business can’t cover the debt, the repayment a lender can request is restricted to one of the following options:

  • A specific dollar amount.

  • A percentage of the loan amount.

  • A period of time.

  • The amount the lender obtains from specific collateral.

  • The amount of community property or spousal interest the borrower pledges as collateral

If the lender makes a written request to the borrower, they must pay all amounts based on the terms of the guarantee. Like the unlimited guarantee, the lender is not required to seek payment from any other source before turning to the business owner for payment.

Lenders may use SBA Form 148L for the limited personal guarantee, or their own equivalent form, and specify the guarantee option in the authorization.

Compare small-business loans

To see and compare SBA loan options — and alternatives — check out NerdWallet’s list of the best small-business loans.

Our recommendations are based on the market scope and track record of lenders, the needs of business owners, and an analysis of rates and other factors, so you can make the right financing decision.