Spousal Guaranty Requirements for SBA Loans

Borrowers are often concerned about how the bank loan impacts the “spouse and house.” We cover the house here and the SBA has new rules for spousal guaranties which is covered here.

A spousal guaranty is a legal agreement in which a spouse personally guarantees the repayment of a loan. If the business fails to repay the loan, the lender can pursue the spouse's personal assets to satisfy the debt. The new SBA SOP has broadened the scenarios under which a spouse may be required to act as a guarantor. These are the factors to know which can influence whether a spouse is required to provide a guaranty for an SBA loan:

Spousal Guaranty Rule: For SBA loans, if a spouse of an owner owns any percentage, and the spouse equity and the owner equity combined equals 20% or more, the spouse also has to be a guarantor. So, if an owner has 19% equity and their spouse has 1% equity then both must be guarantors.

Community Property or Spousal Interest in Property: If a spouse has a community property or spousal interest in property that is pledged to secure an SBA loan, they may need to guarantee the loan. This requirement is due to community property laws which give spouses an equal ownership interest in property acquired during marriage and spousal interests that allow spouses to inherit property from each other.

Significant Influence Over Business Operations: A spouse may be required to be a guarantor if they exert significant influence over the business's operations, even without a direct ownership interest in the business. For instance, if the spouse manages the business's finances or makes major decisions for the business, the SBA may consider them a de facto owner and require a guaranty.

Prior Bankruptcy or Credit Issues: If the spouse has a history of bankruptcy or credit problems, the SBA may require a guaranty. This is because SBA considers a spouse's creditworthiness when evaluating the overall risk of the loan. If the spouse's credit history indicates higher risk of default, the SBA may require their guaranty to mitigate that risk.

Limited or No Community Property Laws: In certain states with limited or no community property laws, spouses may still be required to be guarantors if they have a significant financial interest in the business or have contributed to the business's success in some way. For example, if a spouse has invested personal funds into the business or provided valuable labor or expertise, the SBA may require their guaranty.

Boarder-line Approval Scenario: For less established borrowers whose loan is borderline for approval, a spouse who generates income can be added as a guarantor to help push the loan over the approval line with the lender.