Personal Guarantees on Investor Loans: What You Are Actually Signing

A personal guarantee is your promise, as an individual, to repay a loan if the borrowing entity can't. Your LLC signs the note. You sign the guarantee. That makes the loan "recourse": the lender can look past the property and the company to you.

A simple example

Example, round numbers. Your LLC borrows $300,000 on a flip. The market softens, the loan goes into default, and the foreclosure sale nets $260,000. After legal costs and unpaid interest, $55,000 is still owed. With a full guarantee, the lender can pursue you personally for that $55,000, to the extent state law allows. Without one, it would be limited to whatever the LLC owns.

What it usually covers

Most guarantees reach the unpaid principal, accrued interest, default charges, and the cost of collecting. Some are "limited," capped at a dollar amount or a percentage. In short-term private lending, full guarantees are the norm. Non-recourse debt exists, but it tends to show up on larger commercial deals, and even then it usually comes with "bad boy" carve-outs that make the guarantor liable for things like fraud or an unapproved transfer of the property.

Why it matters to you

Forming an LLC protects you from many things. It does not shield you from a loan you guaranteed. Read the guarantee before closing, know whether it is full or limited, and plan your exit so it never gets tested. If your company has partners, ask early which of them will need to sign, since practices vary from lender to lender.

At RSC Private Lending, all four core programs (Fix & Flip, New Construction, Bridge and DSCR Rental) lend to an LLC, LP or corporation with a personal guarantee. Eligible borrowers are U.S. citizens and permanent residents; foreign nationals are not eligible. Send us your scenario for a term sheet in 24 hours. Subject to underwriting.