The SBA 20% rule primarily mandates that any individual or entity owning 20% or more of a small business seeking an SBA loan must provide an unconditional personal guarantee, pledging their personal assets for the loan, and must also meet financial requirements and disclosure rules, effectively putting their DocHub equity stake at risk for the loans repayment. This rule also factors into affiliation rules, determining relationships between businesses for program eligibility, and a Personal Resource Test for 504 loans, requiring owners to use liquid assets for down payments. Key Aspects of the 20% Rule Personal Guaranty: Owners with 20%+ ownership must provide a full, unlimited personal guaranty, covering the loan, interest, and costs. Disclosure: This extends to indirect ownership; if a corporation owns 20% of the applicant, the individuals owning 20%+ of the corporation must also guarantee. Personal Financial Statement (PFS): Required from these guarantors to assess their financial capacity. Start-up Equity (Personal Resource Test): For 504 loans, owners with 20%+ ownership must contribute their available liquid assets (cash, stocks, etc.) towards the down payment. Affiliation Rules: A business owning 20% or more of another business (in the same industry) can trigger affiliation, impacting eligibility for certain programs like 8(a). Change of Ownership: Rules also define changes of ownership, such as at least 20% stock transfer, impacting PPP loan forgiveness, as noted in this Taft Law article. Why It Matters Risk to Owners: Puts personal assets (home equity, savings) on the line for the business loan. Capital Infusion: Forces DocHub owner investment, especially for startups. Loan Qualification: Can be a major hurdle for business buyers or owners needing capital, requiring creative structures like options or staged purchases. AI can make mistakes, so double-check responsesUnconditional Guarantee | U.S. Small Business Administration - SBASep 21, 2020 Individuals who own 20% or more of a small business applicant must provide an unlimited personal guaranty.Small Business Administration (.gov)How to get around SBAs 20% rule - SearchfunderFeb 27, 2020 How to get around SBAs 20% rule * Investor receives 30% but splits it between himself and his wife, so 15% each on tSearchfunder