Cross-collateralization

Definition

A lender taking your other property as security for this loan.

Why It Matters

This is the clause that reaches past the business. An SBA lender that finds the company's assets worth less than the loan must take available equity in personal real estate, and a house with equity in it is the usual answer. The rule reaches homes and investment property owned solely by owners of 20% or more or by guarantors, supplemental ones aside, and a home held jointly with a spouse is one the lender must consider. It is not negotiable, but it has a floor and a cap: no lien where the equity is under 25% of the value, and a lien the lender may limit to the shortfall or to 150% of the equity. The lien stays until the loan is repaid or refinanced.

In numbers: A $1.5M loan secured by business assets worth $1.1M under the program's discounts leaves a $400k shortfall, so the lender must take a lien on a home a guarantor owns alone with at least 25% equity, and may limit it to the $400k.