Key takeaways
- SBA lenders aren’t required to take collateral for most SBA loans under $50,000.
- SBA lenders will use their existing loan collateral policies to determine how much collateral you need to put up.
- The SBA requires a personal guarantee for any owners with at least a 20 percent ownership stake.
When you take out a small business loan, lenders often want to ensure you can pay back the loan, even if the business fails. Personal guarantees and collateral are two different ways a lender can look for this type of security. SBA loans often require collateral or a personal guarantee when signing for the loan — sometimes both. Find out when the SBA may have these requirements and what to expect when applying for an SBA loan.
Differences between collateral and a personal guarantee
Like many small business loans, SBA loans may require collateral or a personal guarantee , or both. Collateral is any asset used to back an SBA loan, reducing the risk for the lender if you default on the loan. A personal guarantee is a signed agreement that you’ll repay the SBA loan from personal assets if your business can’t pay.
| Collateral | Personal guarantee |
|---|---|
| A business asset or all business assets that secure the loan. | The business owner(s) agrees to pay back the loan out of personal assets if the business is unable to. |
| Does not require business owners to be personally liable for the loan. | Requires business owners to be personally liable for a business loan. |
| Can include items like business equipment or machinery, commercial real estate, company vehicles, inventory or accounts receivable. | Allows the lender to seize personal assets and/or cash from the individual business owners up to the amount specified in the guarantee agreement. |
Do SBA loans require collateral?
The majority of SBA loans do not require collateral for amounts under $50,000 However, a lender may use its own collateral policies when determining if they will take collateral and how much collateral to take. The loan is considered fully secured if the lender requires collateral and/or a down payment that equals the amount of the loan.
The exact policies will vary based on the type of SBA loan. Here’s what you can expect for each type:
| Type of SBA Loan | Collateral policies |
| Standard 7(a) loan | The lender must use its existing collateral policies for non-SBA loans to determine how much collateral the business needs to pledge. |
| 7(a) Small Loan, Express Loan and Export Express Loan | Loans under $50,000 do not need collateral. Lenders must use existing collateral policies for similar non-SBA loans. Lenders cannot deny the loan only due to lack of collateral. |
| Export Working Capital Loan | The inventory and accounts receivables related to the export products are considered sufficient collateral. |
SBA loans for different credit scores
The SBA 7(a) and 504 loans are solid options, especially if you have good or excellent credit. But there are SBA loans with relaxed eligibility requirements that can help if you are a startup, have bad credit or own a business in an underserved community. This includes:
Do SBA loans require personal guarantees?
SBA loans typically require that business owners with at least a 20 percent stake provide a personal guarantee for the loan.
Personal guarantees may be limited or unlimited. A limited personal guarantee has a cap on how much the business owner must pay back on the loan. But an unlimited personal guarantee (sometimes called an unconditional personal guarantee) requires that the business owner is held responsible for the full amount owed if the business cannot.
For SBA loans, business owners who own 20 percent or more of the company must sign an unconditional guarantee. Business owners who own less than 20 percent of the company may sign a limited guarantee.
What if you can’t provide SBA loan collateral or a personal guarantee?
If you are unable to provide the collateral and/or personal guarantee required for an SBA loan, you may need to consider other options to get the business funds you need. Think about these SBA loan alternatives:
- Small business grant: Getting a grant means funding for your business that you don’t need to pay back, so there is no need for collateral or a personal guarantee. While finding grants and applying can take a lot of work, it can be worth it to save money on interest and avoid having to make a monthly payment.
- Small business credit card: It is possible to find business credit cards that don’t require a personal guarantee. Business credit cards typically don’t offer spending limits in amounts as high as SBA loans. But they can be a great alternative if you don’t need large amounts of business funds.
- Crowdfunding: Crowdfunding offers a way for businesses to raise money from a large pool of individuals. Crowdfunding often requires that you give investors a gift in return for their money, such as a limited-edition product or a small share of the company. But, you don’t need to have a personal guarantee or collateral to raise money for your business this way.
- Small business line of credit: A business line of credit can be easier to get than a business loan. Plus, there are both secured and unsecured options available — meaning you don’t need to provide collateral to get one. Be aware that interest rates for unsecured lines of credit will be higher than interest rates for SBA loans or other secured loan options.
- Unsecured small business loan: Unsecured business loans don’t require any collateral, but they often require a personal guarantee. Talk to lenders to look for an unsecured loan option that will work for your needs.
The bottom line
Getting an SBA loan requires that you provide either a personal guarantee, collateral or both. This means your business assets or personal wealth may be at risk if the business defaults on the loan.
If you don’t want to risk your collateral or personal assets, consider alternatives for funding. You may look into unsecured business loans or other options to find an option that best fits your business needs.
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