SBA guaranty

Definition

The share of a 7(a) loan the government repays if the borrower defaults.

Why It Matters

It is the whole reason a bank will lend against a business's cash flow and goodwill when the hard collateral is not there, and it is capped twice. Per loan it covers 85% at or below $150,000 and 75% above. Across a borrower and their affiliates it stops at $3,750,000 of guaranty in total, which a single top-size 7(a) uses in full. So the buyer who borrows the largest loan the program allows has no guaranteed capacity left for a second business, and a partner's existing SBA debt comes off the allowance before this deal is measured. Ask what is outstanding before writing an LOI on a second acquisition.

In numbers: A $5,000,000 7(a) guaranteed at 75% consumes $3,750,000 of guaranty, the entire per-borrower allowance, leaving a second deal of any size with none.