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You don’t have to have collateral to get an SBA loan. However, the SBA will require the applicant to pledge collateral when it is available to fully secure the loan. If there is not sufficient collateral in the business, the SBA must take available equity in the personal real estate (residential and investment property) of any owners with 20% or more ownership. (An exception is made if there is less than 25% equity in personal real estate.)
SBA 7(a) Small Loans of $25,000 or less do not require collateral.
Personal guarantees are also generally required. An individual who owns 20% or more of the business must provide a full unlimited personal guarantee. (Sometimes referred to as “guaranty.”) And each loan must be guaranteed by at least one individual or entity. Sometimes the SBA may require a personal guarantee from a key person in the business even if they don’t own 20% or more of the business. Spouses may be required to sign a personal guarantee when the combined interest of the two spouses and minor children totals 20% or more. In addition, non-owner spouses will be required to sign off if jointly held collateral (such as home equity) is pledged.
Note that startup businesses (businesses in existence for one year or less) require the small business owner to contribute at least 10 percent of the total project costs. While you may think of this as a down payment, it is officially called an “equity injection.