Do I have to sign a personal guarantee on a commercial loan?
Yes, most commercial real estate loans require a personal guarantee from any owner of 20 to 25 percent or more of the borrowing entity, meaning you are personally liable for the debt if the entity defaults and the property does not cover the balance. Non-recourse loans, which limit the lender's remedy to the property itself except for specific carve-outs, are available mainly through agency multifamily programs and CMBS loans, typically starting around $1 million on stabilized property.
What a personal guarantee means
If the borrowing entity, typically an LLC, defaults on the loan and the lender forecloses but the sale proceeds do not cover the full balance, a personal guarantee lets the lender pursue your personal assets for the shortfall. Without a guarantee, the lender's remedy would be limited to the property alone.
Who has to sign
| Ownership percentage | Typically required to guarantee |
|---|---|
| 20 to 25 percent or more | Yes, with most lenders |
| Under 20 percent | Usually not required |
| Managing member with less than 20 percent ownership | Sometimes required regardless, depending on the lender |
Which loans are typically full recourse
DSCR loans, bridge loans, hard money loans, most bank commercial loans, and SBA loans are all typically full recourse, requiring a personal guarantee from significant owners.
Which loans can be non-recourse
Agency small balance multifamily loans (Fannie Mae, Freddie Mac programs) and CMBS loans, both typically available from about $1 million on stabilized property, are commonly non-recourse, meaning the lender's remedy is the property itself except for carve-outs.
The carve-outs on non-recourse loans
Even a non-recourse loan restores personal liability for specific bad acts: fraud, misapplication of rents or insurance proceeds, environmental contamination, waste, and voluntary bankruptcy. These are sometimes called bad-boy guarantees.
Reducing personal exposure
- Keep ownership below 20 percent if structurally possible, though this reduces control and often is not practical for a primary sponsor.
- Move toward non-recourse agency financing once a building qualifies.
- Maintain adequate insurance to reduce the odds of a shortfall claim in the first place.
- Understand which specific carve-outs apply, since these are the actions that would restore liability even on a non-recourse loan.
A worked example
A $2 million loan on a 12-unit building defaults, and the lender forecloses and sells for $1.7 million, leaving a $300,000 shortfall after costs. On a full-recourse loan, the guarantors are personally liable for that $300,000. On a non-recourse agency loan without any carve-out triggered, the lender's loss stops at the $1.7 million recovered from the sale.
How CommFi handles it
Our lending desk is upfront about which loans in a given deal will require a personal guarantee and which non-recourse options might be available once a property qualifies. It funds direct when it fits, and when the desk searches a database of 7,000+ lenders, it flags non-recourse options where your deal is large and stabilized enough to access them. Zero upfront fees.
Related reading
Related questions
- Do I have to personally guarantee a commercial real estate loan?
- Almost always, if you own 20 to 25 percent or more of the borrowing entity. This applies to DSCR, bridge, hard money, bank, and SBA loans.
- What loans are available without a personal guarantee?
- Agency small balance multifamily loans and CMBS loans, typically starting around $1 million on stabilized property, are commonly non-recourse.
- What are carve-outs on a non-recourse loan?
- Specific bad acts, like fraud, misapplication of funds, environmental damage, or voluntary bankruptcy, that restore personal liability even on an otherwise non-recourse loan.
- Can I avoid a personal guarantee by owning less than 20 percent?
- Sometimes, though this reduces your control and is often impractical for a primary sponsor who needs majority ownership.
- What happens if I default on a loan with a personal guarantee?
- The lender can pursue your personal assets for any shortfall remaining after the property is sold, beyond just losing the property itself.
Property developer and licensed appraiser. 22+ years in real estate: TIC conversions, multi-unit redevelopments, mixed-use, fix and flips, commercial DSCR.