Banking & Financial Services Industry Legal Blog

Overview of typical SBA 504 transactions

Banks and other lending institutions offer a number of US Small Business Administration (“SBA”) guaranteed loan programs to assist the development of small businesses. While the SBA itself does not make loans, it does guarantee loans made to small businesses by private and other institutions. Specifically, the US SBA 504 loan or Certified Development Company (“CDC”) program is designed to provide financing for the purchase of fixed assets, which usually means real estate, buildings and machinery, at below market rates. The 504 Program cannot be used for working capital or inventory, consolidating or repaying debt, or refinancing. The SBA 504 program works by distributing the loan among three parties. Typically, a 504 project includes…

A contract of guaranty is the promise to answer for the payment of some debt or the performance of some obligation by another, such that if the original debtor is unable to pay the debt or satisfy the contractual obligation, for whatever reason, the guarantor is himself liable on the default of the primary obligor. The guarantor’s knowledge of the execution or delivery of a guaranty is irrelevant, where the contract of guaranty speaks for itself and where the guarantor has not disclaimed knowledge of the guaranty. See Chris Craft Industries, Inc. v. Van Valkenberg, 267 So.2d 642 (Fla. 1972).

In a typical case, a President, CEO, or other officer signs a personal guaranty for the debts of his corporation and becomes personally liable for the debt upon the corporation’s default. Florida case law demonstrates that a simple, but well-drafted personal guaranty, which specifically enumerates the personal nature of the debt assurance, is adequate to form a legal and binding personal guaranty.