Do I Have to Personally Guarantee My Loan? How It Works With RSC

Most investors close loans in an LLC. Most private lenders still ask a person to stand behind the debt. That promise is a personal guarantee. Here is why it exists, who usually signs, and what it means for you.

At RSC Private Lending, the short answer is yes. All four of our core programs (Fix & Flip, New Construction, Bridge and DSCR Rental) lend to an LLC, LP or corporation with a personal guarantee, and borrowers must be U.S. citizens or permanent residents.

Why a lender asks for one

An LLC is a useful structure, but it has no credit history, no track record and often no assets beyond the property. A lender can't underwrite an empty shell. So it underwrites the people who run it, and asks them to back the loan.

The guarantee does two things. It gives the lender a way to recover a shortfall if the property doesn't cover the debt. And it keeps the borrower's incentives aligned with finishing the project.

Who signs

The LLC is the borrower. It signs the promissory note and owns the property. The guarantor is the individual, or individuals, who promise to pay if the LLC can't.

Lenders usually look for the people who control the entity, plus anyone whose credit, experience or finances were used to qualify. Passive investors with small stakes sometimes don't sign, but that varies by lender and deal.

What it covers

A full guarantee typically reaches the unpaid balance, interest, default charges and collection costs. That makes the loan recourse: after the property and the entity, the lender can come after the guarantor's own assets.

Example, round numbers only. Your LLC owes $350,000. After a default, the property sells for $310,000 and costs of sale and collection add $20,000. The shortfall is $60,000. Under a full guarantee, the lender can pursue you for that $60,000.

Some guarantees are limited to a dollar amount or to specific events, sometimes called "bad boy" carve-outs, such as fraud or unauthorized transfers. In short-term private lending, full guarantees are common. Non-recourse loans exist, mostly on larger commercial deals.

How to think about it

• Your LLC can protect you from many risks, such as tenant or contractor claims, but not from a loan you guaranteed.
• Read the guarantee before closing, and have your attorney review it if anything is unclear.
• Choose a realistic scope, timeline and leverage. The best protection is a deal that never needs the guarantee.
• Talk with your lender early if a project starts to slip. Problems are easier to solve before a default.

What this means for you

Expect to sign a personal guarantee on a private investor loan, and treat it as a real obligation. Know who in your entity will sign, understand what it covers, and plan the deal so it stays a formality.

Questions about structuring your entity and guarantee? Ask RSC Private Lending before you submit your scenario. Subject to underwriting.