The SBA 504 Loan Program: What is a Personal Guarantee?
The Small Business Administration (SBA) 504 loan is a helpful and competitive small business loan option for companies that are looking to grow. SBA 504 loan gives small businesses the financial resources they need to acquire commercial assets such as real estate and purchase or improve equipment, machinery, or new buildings! A key benefit of SBA 504 loans is that SBA 504 loans require substantially less down payment from small businesses when these businesses borrow money compared to most conventional bank loans.
How SBA 504 Loans Work
If you have a commercial acquisition need, you can apply for a SBA 504 loan through Certified Development Companies (CDCs) such as Business Finance Capital (BFC). CDCs are SBA’s community-based partners who regulate nonprofits and promote economic development within their communities. CDCs are certified and regulated by the SBA. When you apply for a SBA 504 loan, a CDC will find a partnering lender such as a bank to loan out 50% of the project. A CDC will make a loan for 40% of the project. The borrower, which is oftentimes a business owner, will contribute 10% of the project while committing to personal guarantees to pay back the loan.
What are Personal Guarantees?
When processing an SBA 504 loan for our clients here at BFC, we’re often asked about “personal guarantees”, and what they mean in relation to the loan. In simple terms, a personal guarantee is a legal document that ensures the lender or business owner has the funds necessary to repay the cost of the loan should it go into default. The “guarantor” (the on