The $10 million question, answered in under five minutes.

On July 4th, the SBA doubled its cumulative loan cap to $10 million. In this video I break down what actually changed, what did not, and which buyers it helps. Then keep reading, because this month’s memo covers the rule that surprises even more buyers.

New video from Brad Hettich, President of Commercial Lending X

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Feature Topic: What Every SBA Buyer Should Know Before Signing a Personal Guarantee

I often get contacted by buyers after they have signed a personal guarantee, asking what they actually committed to. That is the wrong time to ask. The right time is before the LOI, because the guarantee is not a formality buried in the closing stack. It is the document that determines what you are personally exposed to if the business you are buying does not perform the way the projections say it will.

Here is what you actually signed. An SBA personal guarantee is a full, unconditional promise: if the business cannot service the loan, the lender can look to you personally for the balance. When a bank officer reviews your personal financial statement, they are not admiring your net worth. They are asking one question: if this deal goes sideways, what can we actually recover, and from whom?

And what happens if the business struggles after close? Truthfully, the guarantee is not there so the bank can take your house in month one. Lenders would rather restructure than chase collateral. But the guarantee is what keeps every owner at the table while that workout happens, and it is why the bank underwrites you as carefully as it underwrites the business. A workout, in plain terms, is the process where the lender and the borrower renegotiate the loan terms to get a struggling loan back on track.

I spent over a decade as a bank officer before founding CLX, and we have reviewed 1,500+ deals in the past three years. This rule is now one of the most common reasons investor-backed deals stall in underwriting, and it almost always surfaces after the investor terms are agreed. The good news: if the seller exits 100%, the standard rules apply, and passive investors under 20% are generally off the hook. The structure of the seller's exit, not the size of your investor's check, is what determines who signs.

Three pieces worth your time this month.

I have to volunteer my conflict of interest here, as I always do. CLX earns a success fee when deals close, so obviously I am in favor of more deals getting financed, after all that is how I make my living. But truthfully, I am always trying to advise my clients and help them make the best decisions possible, and sometimes that means telling you a structure will not survive underwriting.

We offer a free review of any deal. If the structure works, we will tell you. If it does not, we will tell you that too, before you spend three months finding out in underwriting. If you are structuring a partner buyout or bringing investors into an acquisition, send me the basics and I will tell you how a lender will see it. I hope this helps.

Brad

Brad Hettich

President  ·  Commercial Lending X

info@commerciallendingx.com  ·  888-975-0007