This 20 percent threshold applies even if an owner rolls equity in the transaction. The ownership requirement also includes a 6-month lookback period — anyone who owned 20 percent or more within 6 months prior to application remains subject to guarantee requirements unless they've completely divested from the business.

Spouses often face guarantee requirements as well. Each spouse owning less than 20 percent must personally guarantee the loan when their combined ownership interest exceeds 20 percent. Even non-owner spouses may need to sign documentation for jointly owned collateral, like a shared residence.

For investors, this 20 percent threshold creates a natural ceiling on ownership stakes, allowing them to participate in a deal's upside while avoiding personal guarantee requirements.

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SBA loans follow a principle of taking "all available collateral" up to a certain threshold. This means personal assets often become part of the loan security package.

"SBA's general rule of thumb on collateral is you have to take all available collateral if you're under collateralized on the deal," says Woodward. "Collateral does need to be provided if it's available up to the point of getting the bank to a one-to-one collateral coverage."

Real estate holdings weigh heavily in this calculation. When a guarantor's primary residence has more than 25 percent equity, lenders typically secure a lien against the property. This same principle applies to any commercial properties fully owned by guarantors.

Life insurance assignments represent another key collateral requirement. Lenders take an assignment of life insurance to protect against the owner's death during the loan term. The policy amount typically covers the collateral shortfall, which in many cases means nearly the entire loan amount.

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While SBA guidelines generally

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