Who must personally guarantee an SBA loan?

The rule in plain language

Section 120.160 of Title 13 lists the conditions that SBA "normally" requires for all business loans. The first condition is personal guarantees. The sentence is short: holders of at least a 20 percent ownership interest generally must guarantee the loan. Two words in it matter. "At least" means exactly 20 percent is inside the rule, so a one-fifth owner is a required guarantor, not an optional one. "Generally" means this is the default expectation that lenders and SBA apply, not a mathematical guarantee that nobody below the line will ever be asked.

A personal guarantee is a separate promise by the individual to repay the loan if the business does not. It sits on top of the business's own obligation. That is why owners care about the threshold: signing it puts personal assets behind a business debt. The regulation does not describe the contents of the guarantee document, which come from SBA's forms and the lender's loan documents. It only says who is expected to sign.

How the 20 percent line works with several owners

Run the test owner by owner. Take a company owned 45 percent, 30 percent, 15 percent and 10 percent by four people. The first two clear the 20 percent line and must generally guarantee. The 15 percent and 10 percent owners are below it, so the default rule does not require their signatures. Together those two hold a quarter of the company, which is more than any single required guarantor would be asked about, but the regulation measures each holder separately and never adds minority holders together to reach 20 percent.

The same logic applies when two partners own exactly half each, or when five equal owners each hold exactly 20 percent. In the second case all five are at the line and all five are generally required. The checker above applies this arithmetic: enter up to four ownership percentages and it flags which are at or above 20 percent. It does not decide who counts as an owner. Indirect ownership through a holding company, community-property questions, and ownership by a trust are matters for the lender's underwriting and SBA's procedures, and this section of the regulation does not resolve them.

Below 20 percent: the "other appropriate individuals or entities" clause

The second sentence of 120.160(a) gives SBA, or a lender processing the loan under delegated authority, the power to require "other appropriate individuals or entities" to provide "full or limited guarantees" when that is "deemed necessary for credit or other reasons." The words "without regard to the percentage of their ownership interests, if any" are the key. A guarantor can own 5 percent or nothing at all. A spouse who owns no shares, a parent supporting a young founder, or a related company can all be requested to guarantee if the lender thinks the credit needs it.

The phrase "limited guarantees" also matters. The regulation recognizes that a guarantee need not be for the full debt. A limited guarantee can cap the dollar amount or the time period. The text does not say what limits are acceptable; it only says they are allowed. If a lender asks a minority owner for a guarantee, the request rests on the credit analysis for your specific loan, not on a rule that says everyone must sign.

Passive real estate companies and trusts

A related rule applies when a real estate holding company, called an Eligible Passive Company, borrows and leases the property to the operating business. Section 120.111(a)(6) says each holder of at least 20 percent of either the passive company or the operating company must guarantee the loan. It repeats the same flexible power to require other guarantors. Section 120.111(a)(5) adds that the operating company itself must be a guarantor or a co-borrower. For trusts, 120.111(b) says the trustee executes the guaranty on behalf of the trust and that "the trustor must guarantee the loan." The two-company structure therefore pulls in owners from both sides of the lease.

Other conditions in the same section

Personal guarantees are only paragraph (a) of 120.160. Paragraph (b) says SBA may require professional appraisals of the applicant's and principals' assets, a survey, or a feasibility study. Paragraph (c) requires hazard insurance on all collateral for 7(a) loans greater than $500,000 and for 504 projects greater than $500,000. If you are comparing what an SBA loan asks of you with a conventional loan, these three items are the whole list in this section, and they are described as normal requirements rather than rare ones.

What the rule does not say

The section does not say that real estate must be pledged, does not set a minimum net worth for guarantors, and does not say anything about how a guarantee is released. It also does not say that a lender must waive a guarantee when ownership is below 20 percent, or that it must require one when ownership is above 20 percent in a particular legal form; the word is "generally." And it does not say what happens in a divorce, a sale of the business or a death. Those questions are answered by the signed guarantee, state law and SBA's loan procedures. Treat the 20 percent rule as the starting point of a conversation with your lender, not the end of one.

Sources

• 13 CFR § 120.160, Loan conditions. Read November 2, 2026.
• 13 CFR § 120.111, What conditions must an Eligible Passive Company satisfy?. Read November 2, 2026.

Text read: Electronic Code of Federal Regulations, Title 13, Part 120, current through the eCFR issue date of October 29, 2026. Dollar figures and percentages on this page are the ones printed in those sections as of that date; SBA can amend the rule and publishes loan-program procedures (such as SOP 50 10) that add detail this page does not cover. Confirm current terms with an SBA-approved lender or at sba.gov. This page summarizes the regulation and does not replace it.