Personal Guarantees on Acquisition Loans: What You Are Signing

A personal guarantee is your signed promise to repay the acquisition loan from your own assets if the business cannot. The borrower on the note is the company you form to buy the target. The lender wants a second source of repayment, and you are it.

On an SBA 7(a) loan, the rule comes from 13 CFR 120.160(a). Holders of at least a 20% ownership interest generally must guarantee. The lender can also ask for guarantees from people who own less than 20%, regardless of their ownership. That matters if you plan to bring in a partner or a minority investor.

Do not confuse your guarantee with the SBA guarantee. The SBA guarantees a percentage of the loan to the lender: 85% on a loan of $150,000 or less, 75% above that. That protects the bank. It does not reduce what you owe. You stay liable for the full balance.

At closing you sign at least three things:

• The note, on behalf of the acquisition company.
• The guaranty, in your own name, which is the document that puts your personal assets at risk.
• The security documents, which pledge business assets and, if the loan is not fully secured by those assets, a lien on personal real estate.

Treat the guaranty, the security agreement, and any mortgage as three separate documents with three separate risks, and ask the lender for all three drafts before your letter of intent expires.

Eight thresholds decide who signs, what gets pledged, and how long you stay exposed. They come from SBA regulations and SOP 50 10 8.1, which applies to loans numbered on or after October 1, 2026.

Three of these interact. If the loan is not fully secured by business assets, the lender must take a lien on all available equity in the personal real estate, residential and investment, of every owner of 20% or more. The SBA treats a loan as fully secured when the lender holds liens on all available assets whose combined adjusted book or liquidation value reaches the loan amount. A service company with few hard assets will not get there, so the lien question lands on your home equity.

The lender may not decline an otherwise eligible loan solely for insufficient collateral. That protects you from a flat no, but it does not stop the lender from taking everything available.

The rate is variable. Prime rose from 6.75% effective December 11, 2025 to 7.00% effective September 17, 2026. Every point of prime that moves raises the cost of a balance you have personally guaranteed.

On a business-only loan, the acquisition portion amortizes over no more than 10 years, so your guarantee can stay in force for up to a decade unless you pay the loan off first. If the deal includes real estate, that portion can run up to 25 years, as a separate loan or through a blended maturity, and your guarantee can last that long too.

On a $3,000,000 purchase, you personally guarantee a $2,700,000 loan, and you may be asked to guarantee a $150,000 seller note on top of it. The example below uses a $3,000,000 purchase price, $650,000 of SDE, and the standard injection split of 5% cash plus 5% seller note on full standby. For simplicity, total project cost equals the purchase price, with no closing costs or working capital added.

The wrong reading of this table is that you are exposed for $675,000. The 75% guarantee is the SBA's promise to the bank. Your guaranty covers the whole $2,700,000. The $2,850,000 line applies only if you give the seller a guarantee on the standby note, which is a negotiated term, not an SBA requirement.

The variable rate on this loan is capped at base rate plus 3.0%, which is 10% at today's 7.00% prime. The loan runs up to 10 years. Use the SBA 7(a) loan calculator to see the payment at the rate your lender quotes.

Three other items hit this deal before you sign:

• Coverage. The lender tests EBITDA divided by debt service at 1.25x on the last fiscal year or a two-year average. Your $650,000 of SDE is the starting point, not the test. EBITDA subtracts a market-rate salary for a replacement manager, and that lower number is what must cover the payment. The standby note is excluded from debt service.
• Valuation. The price is above $350,000, so the lender orders an independent valuation from a Qualified Source. Total acquisition debt cannot exceed it. Any price above the valuation must come from your equity or from debt on full standby, which raises your cash at risk.
• Quality of earnings. A Quality of Earnings report is required when the Business Purchase Price is $3,000,000 or more on an Initial Acquisition. This deal sits at that line, so confirm with the lender whether the price net of appraised owner-occupied real estate triggers it. See the SBA 7(a) acquisition guide for the full sequence.

Your $150,000 of cash must be unborrowed or repaid from a source other than business cash flow, and the lender will want bank statements showing it was available for at least 30 days.

You cannot negotiate whether a 20% owner signs, but you can negotiate what the guarantee is tied to, who else signs, and what the seller gets from you. The SBA sets the floor. The lender decides everything above it.

Fixed by the SBA, so nobody trades it

• Every 20% owner guarantees.
• A trust owning 20% or more must guarantee, and the trustor must also personally guarantee.
• A minor child may not own 20% or more.
• The 10% equity injection, with up to half as a full-standby seller note.
• The 1.25x historical coverage floor.

Open to negotiation with the lender

• Which personal real estate is pledged. The lender takes available equity, but equity below 25% of fair market value need not be taken, and the lender must substantiate your equity beyond your own statement. Bring your own mortgage balances and valuations. The lender holds the position here because it can take everything available, and you hold it only to the extent your numbers are documented.
• Other signers. The lender may ask for guarantees from people under 20%. Ask which ones and why, in writing, before you offer a minority stake to anyone.
• Wording of the guaranty. Ask whether each guarantor is liable for the whole loan or a share, what future advances it covers, and what happens if the loan is modified.
• Rate within the cap. The rate is negotiated but cannot exceed the SBA maximum.

Open to negotiation with the seller

The seller may ask for your personal guarantee on the standby note. Your bargaining position is the SBA structure itself: the note must stay on full standby for the life of the 7(a) loan, documented on SBA Form 155, so the seller has no payments to protect for up to 10 years. Interest may accrue on the standby balance and be paid after the SBA loan is repaid. Offer accruing interest and a security interest behind the bank before you offer a second guarantee. Read the seller financing guide before you price that trade.

If the appraisal comes in below your price, the seller holds the position on the gap, because you must fund it with equity or standby debt. Settle that term in the letter of intent, not after the valuation arrives.

The costly mistakes happen before closing, when buyers assume a structure that the rules do not allow. Seven of them are worth checking against your own deal.

1. Reading the SBA guarantee as your protection. It protects the lender. Your liability is the full loan balance.
2. Planning on projections. Under SOP 50 10 8.1, projections may be reviewed but cannot be used to meet the 1.25x floor. If the historical numbers fall short, your plan to grow into the payment does not qualify.
3. Quoting the Business Expansion floor. The 1.15x test applies only to a Business Expansion. An initial acquisition needs 1.25x on historical results.
4. Using borrowed or business money for the injection. A personal loan counts only if it is repaid from a source other than business cash flow. Your salary from the business does not qualify. A promissory note or gift letter alone does not verify the injection.
5. Counting advisory fees. Under 8.1, education, advisory services, and agent fees you pay do not count toward the injection.
6. Using a minority partner to avoid signing. A holder under 20% can still be asked to guarantee, and a non-controlling investor's equity counts only within the limited-source cap of half the injection.
7. Planning to refinance the standby note early. A note on full standby stays on standby for the life of the 7(a) loan. The 36-month seasoning rule applies to seller notes paid as agreed, not to standby notes.

A related error is accepting a lien on a home without checking who holds title. A jointly owned property brings the co-owner into the closing, and that conversation is easier before the commitment letter than at the closing table.

Fix the injection source and the coverage math first, because those two items decide whether the lender issues a commitment at all.

Run the numbers on your own deal, then get the lender's collateral and guarantor requirements in writing before you sign a letter of intent. Five steps, in order:

1. Build your personal balance sheet. List each property with a current valuation, the mortgage balance, and the equity percentage against the 25% line. The lender must substantiate equity beyond your own statement, so gather statements now.
2. Test coverage. Start with the target's SDE, subtract a market-rate manager salary to reach EBITDA, and divide by the combined debt service. You need 1.25x on historical results. The SBA 7(a) loan calculator runs the payment and the ratio.
3. Confirm the injection. Set aside the 5% cash in an account that shows at least 30 days of balance history, and confirm the seller will agree to a full-standby note for the other 5%.
4. Ask the lender five questions in writing. Which assets will you lien? Which people must guarantee? Is each guarantor liable for the whole loan? What do you require beyond the SBA minimums? Who is ordering the valuation, and when?
5. Have an attorney mark up the guaranty. A transactional attorney will tell you which clauses make the guarantee continuing, what it covers if the loan is modified, and whether your spouse or co-owner needs to sign separate documents.

Through Acquisition Launch, we source off-market deals for buyers and introduce lenders, so you can compare collateral requirements across lenders before you commit to one.