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Business Debt/SBA Loan personal guarantor

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Expert: - 7/22/2011


Question
I am part of an S Corporation in California that received a loan of $200K, and am one of the two personal guarantors on the loan< in 2007 to open a joint ownership Cafe & Wine Bar in Los Angeles, CA. We have remained current on all loan payments and will do so in the future from the revenues we produce.

Now I want to go off and open a Cafe & Wine Bar of my own in another part of Los Angeles and have approx $100K of the $300K needed to open, a combined FICA score of 720, and the new shop will be my source of income; and want to approach the SBA for the added funding. Will the fact that I am a guarantor on one other loan (excellent standing) be something that could keep SBA loan review from allowing me approval or would that not be taken into account. I understand that other factors might effect my loan application, but need to know if the guarantee is a show-stopper in and of itself.

Thanks you,
Frank Hannigan

Answer
Frank,
The answer to the question about the personal guarantee is not one that really applies to the SBA.  I am a counselor with SCORE, the SBA partner, and can tell you that from the SBA standpoint it won’t have an impact.  Like you, the SBA provides the guarantee.  The question is one for the financial institution that provides the funds; they are the ones that will have to determine the impact of your personal guarantee.  As such, it might make a difference from the standpoint of who provides the loan.  In my experience I can give you no consistent answer on how that will be evaluated.  I have seen those were it does matter and those where it does not.  I’m sorry I can’t give you a more definite answer other than it doesn’t matter to the SBA.

Best of luck if you do start the new café/ wine bar,
Michael

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Michael Fay

Expertise

My focus and specialty is in credit, so that the risk of the debt itself is minimized. This means understanding it, predicting it, and helping to correct it. Having worked in contracts & credit, I have also worked with all of the related documents such as Guarantees (personal and corporate), and Security Agreements (aka UCC’s or “liens” – but I caution you in using those interchangeably).

Experience

I have a broad background with more than 15 years in the credit industry. Ten years with Dun and Bradstreet, first as a field reporter creating reports, then in customer service, finally I served as the credit manager designing risk models for many national and international customers through D&B’s Outsourcing function. Five years with another publicly traded firm where I created the credit department and then served as credit manager for North America. At both companies we used both business and consumer data. You probably know that both business and personal credit have scores; what you might not know is how many different types of scores there are. I am familiar with and have used many different scores in each. Also be aware that each credit type (business & personal) is unique with different processes and different time frames. I have served on the board of directors for companies in many states and still serve in some capacity in a few. I contribute to credit publications and work with the non-profit arm of the SBA called SCORE.

Organizations
ACA International * NACM * Credit Risk Managers * SCORE (SBA)- Counselors to America’s Small Business * Payment Card Industry Network * PaymentSource.com * D&B Alumni * Psi Chi, National Honor Society for Psychologists

Education/Credentials
BIS in Business and Psychology, University of Minnesota * MBA is still in progress (on-line)

Awards and Honors
State of Colorado - State finals in Accounting and Advanced Accounting. * D&B Leadership Winner (3 times) * D&B Leadership Finalist (3 times) *

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