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The Personal Guaranty, Explained Honestly
06 October 2026 · SFR Capital
You borrow through an LLC, and then you sign personally. Investors sometimes
find that contradictory, so it is worth stating plainly what it means.
What you are signing
A full recourse personal guaranty means that if the entity does not repay,
the lender can pursue you personally for the shortfall — not only the property.
The collateral is the first recourse; the guaranty is what stands behind it.
Why lenders require it
A single-purpose LLC formed for one property has no assets besides that
property. Without a guaranty, a borrower's downside is capped at their equity
while the lender's is not, and that asymmetry gets priced into every loan.
Guaranties are one reason private lending is available at rates it is.
What it does not mean
It is not a prediction that something will go wrong, and it does not make the
LLC pointless — the entity still separates this deal from your other assets
operationally, and still keeps the loan on the business-purpose side of the
line. It means your incentives and the lender's point the same way.
Read this part
Guaranties vary. Some are several guarantors jointly and severally, meaning
any one can be pursued for the whole amount. If you are investing with partners,
that is worth understanding between yourselves before closing rather than
after — and it is the kind of question your own counsel should answer, not your
lender.
Recourse, in practice
If a loan defaults, the lender's first step is the collateral. Florida
foreclosure is judicial, which means a court process rather than an
administrative one, and it takes months. If the sale produces less than is owed,
the shortfall is the deficiency — and the guaranty is what allows the lender to
pursue that from the guarantor rather than absorbing it.
Most loans never reach any of this. But the guaranty is what the pricing
assumes, and understanding it is part of understanding why the rate is what it
is.
Joint and several — the clause to read
Where there are several guarantors, most guaranties are joint and
several. That means the lender may pursue any one guarantor for the entire
amount, not a proportional share. If you and a partner each own half and the
deal goes badly, you can be pursued for 100% and be left to recover half from
your partner yourself.
That is not unusual and it is not a trap — it is standard. But it is worth
agreeing between partners, in writing, how a shortfall would be shared, because
the guaranty itself will not do that for you.
What is usually NOT in a short-term guaranty
These vary and should be read rather than assumed, but commonly a guaranty
does not require a personal financial statement, does not create a lien on your
other property, and does not survive repayment. It becomes relevant only on
default and it ends when the loan is repaid.
Questions worth asking before signing
- Is it joint and several, or several only?
- Does it cover the full balance, or is it capped?
- Does it include costs and fees, or principal and interest alone?
- Is it a payment guaranty or a collection guaranty — must the lender exhaust
the collateral first?
- Does it release automatically on payoff?
These are questions for your own attorney. A lender can tell you what its
documents say; only your counsel can tell you what they mean for you.
Why it is not a red flag
A single-purpose LLC formed for one property has no assets besides that
property. Without a guaranty, the borrower's downside is capped at their equity
while the lender's is not, and lending priced for that asymmetry would be
considerably more expensive. The guaranty is one of the reasons private capital
is available on these terms at all.
The clauses worth reading before you sign
- Joint and several. With two guarantors, the lender may
pursue either for the whole amount, not half each. Partners should understand
this between themselves before signing, not afterwards.
- Full versus limited. A limited guaranty caps exposure at a
stated amount or a defined percentage. A "bad boy" carve-out guaranty is
narrower still: it is triggered only by specific conduct such as fraud,
misapplication of funds, or an unpermitted transfer.
- Continuing. A continuing guaranty extends to future loans
with the same lender, not just this one. Whether that is convenient or
open-ended depends on how many deals you intend to do.
- Release on payoff. Confirm the guaranty terminates when the
loan is satisfied. Most do. Read the sentence that says so.
- Waivers. Guaranties commonly waive notice, presentment, and
the requirement that the lender pursue the collateral first. That last one is
the substantive term: it means the lender need not foreclose before coming to
you.
What it means in practice
For a deal that performs, nothing. The guaranty sits in the file and is
released at payoff. Its function is to align a sponsor with the outcome, which
is a reasonable request from someone lending most of the money against a
property they will never see.
Whether to negotiate it
Sometimes. A capped or carve-out guaranty is a fair ask on a low-leverage
deal with an experienced sponsor. Asking for no guaranty at all on a
seventy-five per cent loan to a first-time borrower generally is not. Ask early,
and ask specifically — a request for a defined cap is a conversation, a general
objection to the concept usually is not.
Talk to SFR Capital about your next
Florida investment property →
SFR Capital LLC (SFR) is a private lender, license exempt under Fla. Stat. § 494.00115. SFR only makes business purpose mortgage loans on non-owner occupied Florida investment property. Nothing here is an offer or commitment to lend. All loans are subject to SFR approval of the sponsor, property collateral, title and documentation.