Personal Guarantee
A borrower's personal promise to repay a loan made to their LLC or entity, putting personal assets at risk if the entity defaults. Common on investor loans even when the borrower is an LLC.
A personal guarantee (PG) is a separate promise in which an individual agrees to be personally responsible for a loan made to a business entity. When an investor borrows through an LLC, the entity is technically the borrower — but a personal guarantee means the individual behind it is also on the hook if the entity can't pay. It pierces the liability shield the LLC would otherwise provide for that debt.
Why lenders require it
Most investor lending is done through LLCs for liability and tax reasons. But an LLC may have few assets beyond the property itself. A personal guarantee gives the lender recourse to the guarantor's personal assets — and, just as importantly, aligns incentives: a borrower with personal skin in the game is more motivated to perform. That's why hard money, bridge, and most DSCR loans require a PG from the LLC's principal(s) even though the loan is to the entity.
Full vs. limited guarantees
Guarantees aren't all-or-nothing:
- Full (unconditional) guarantee — the guarantor is liable for the entire debt. Most common on hard money and DSCR loans.
- Limited guarantee — liability is capped at a dollar amount or percentage.
- Bad-boy carve-out guarantee — common on larger/non-recourse deals; the loan is otherwise non-recourse, but the PG springs into effect only for 'bad acts' like fraud, waste, or unauthorized transfers.
The relationship to recourse
A personal guarantee is what makes most investor loans effectively recourse. Even where the note is nominally non-recourse to the entity, a full PG lets the lender pursue the guarantor personally. So the presence and scope of the PG — not just the 'recourse/non-recourse' label — is what really determines your personal exposure.
What's at risk
If the entity defaults and the lender forecloses, and the foreclosure sale doesn't cover the debt, a personal guarantee lets the lender pursue the guarantor for the deficiency — potentially reaching personal bank accounts, other properties, and assets, subject to state law and any deficiency limits.
Practical guidance
- Expect a PG on virtually all small-investor loans; truly non-recourse, no-PG financing is mostly a large-commercial product.
- Read its scope. Is it full or limited? Joint and several with partners? Does it survive the loan's transfer?
- Partners share it. On a multi-member LLC, lenders often require all principals to guarantee, jointly and severally — meaning the lender can collect the full amount from any one of you.
A personal guarantee is standard and usually unavoidable in investor lending — the key is understanding exactly how much personal exposure you're signing up for.
Frequently asked questions
Do I need a personal guarantee if I borrow through an LLC?
Almost always, yes. Lenders require the LLC's principal(s) to personally guarantee the loan because the entity itself may hold few assets beyond the property. The PG gives the lender recourse to your personal assets and aligns your incentives. No-PG, truly non-recourse loans are mostly a large-commercial product.
What does a personal guarantee put at risk?
Your personal assets. If your entity defaults and the foreclosure sale doesn't fully cover the debt, a personal guarantee lets the lender pursue you for the deficiency — potentially reaching personal bank accounts, other properties, and assets, subject to state law and any deficiency protections.
What is a bad-boy carve-out guarantee?
A limited guarantee common on otherwise non-recourse loans. The loan stays non-recourse unless the borrower commits a 'bad act' — fraud, waste, unauthorized transfers, or filing bankruptcy in bad faith — at which point the personal guarantee springs into effect. It deters misconduct without making the whole loan full-recourse.