While there are many factors affecting the ability for a person to be eligible as a borrower, the question remains who can be a Borrower for an SBA Loan?
The first test is ownership of a business. Do you work for yourself or do you share ownership of a company which is a legal entity (Corp, LLC, and Trust)?
If you have 100% ownership interest in a business, then the answer is easy. However, if the business is a legal entity, then anyone who owns 20% or more of this legal entity will have to be a Borrower and guarantee the loan. People with less than a twenty percent ownership interest do not usually have to be a Borrower and do not have to be a Guarantor.
If a person owns a business with more than one person, one of these owners needs to be designated as the representative of the company who has the authority to apply for the SBA Loan. This can be accomplished from the designated job position of a person (President, CEO, Managing Member, Trustee) or from a written document signed by all owners of the company.
A Borrower will have to “guarantee” repayment of the loan. In other words, if there is a payment default, a Borrower himself agrees to pay back the Lender in full. Usually, if a Borrower owns real estate or another kind of personal asset which can have a lien placed on it, the Lender will require the Borrower to allow the Lender to place a lien on this asset in case of loan default. The Lender will then be able to take the asset and sell it to be paid back.
The planning for the preservation of assets in case of loan default is an important part of being in business and for anyone contemplating being a Borrower.