Glossary › Glossary
A personal guarantee is a legal commitment by the borrower — or a principal of the borrowing entity — to personally repay a loan if the business or LLC cannot. In hard money lending, a personal guarantee is the standard. Most hard money loans are recourse loans, meaning the lender can pursue the borrower's personal assets if the property sale at foreclosure does not fully satisfy the outstanding loan balance. Before signing, confirm whether the loan is full recourse, limited recourse, or non-recourse.
When you sign a personal guarantee on a hard money loan, you are agreeing that if the loan defaults and the lender forecloses on the property, and the foreclosure sale proceeds do not cover the full outstanding balance, the lender can come after you personally for the difference.
This means your personal bank accounts, other real estate, vehicles, and other assets are potentially exposed — not just the collateral property securing the loan.
Example: You have a $500,000 hard money loan on a fix and flip. The project goes wrong. You default. The lender forecloses and sells the property at auction for $420,000. There is an $80,000 shortfall. With a personal guarantee in place, the lender can pursue a deficiency judgment against you personally for that $80,000.
Without a personal guarantee (non-recourse), the lender's only remedy is the property. They take the $420,000 and write off the remaining $80,000. You walk away with no further personal liability.
Hard money loans are asset-based lending — the loan decision is driven heavily by the property and the deal, not the borrower's income or creditworthiness. Because underwriting standards are more flexible, lenders offset the higher risk by requiring personal guarantees from the principals.
If the borrower is an LLC (which is common for asset protection purposes), the lender will typically require personal guarantees from the members or managing principals behind the LLC. The LLC does not shield you from personal liability on a recourse hard money loan — the guarantee pierces through the entity.
From the lender's perspective, the personal guarantee:
Full recourse: The lender can pursue the borrower personally for any deficiency after foreclosure, with no cap or carve-out. This is the standard on most hard money loans.
Limited recourse: The lender's personal recourse is capped at a specified amount or percentage of the loan, or is limited to specific circumstances (fraud, misrepresentation, environmental damage, misapplication of funds). Also called "bad boy carve-outs" — the loan is effectively non-recourse except in defined bad-actor scenarios.
Non-recourse: The lender's only remedy is the collateral. If the property value at foreclosure does not cover the loan, the lender absorbs the loss. Non-recourse hard money loans exist but are uncommon — typically reserved for institutional borrowers, very strong deals, or lower leverage transactions.
When reviewing a term sheet or loan agreement, confirm:
Is this loan recourse or non-recourse? If recourse, is it full recourse or limited recourse with carve-outs?
Who must sign the guarantee? If borrowing through an LLC, does the lender require guarantees from all members or only managing members? A spouse's signature is sometimes required if you are in a community property state.
What triggers the guarantee? In limited recourse structures, understand exactly what actions or events expose you to personal liability. Common triggers are fraud, misrepresentation, failure to maintain insurance, waste of the property, and voluntary bankruptcy filing.
Is the guarantee joint and several? On deals with multiple guarantors, joint and several liability means each guarantor is individually liable for the full amount — the lender can collect the entire balance from any single guarantor. Confirm whether your guarantee is joint and several or proportional.
Borrowing through an LLC does not protect you from a personal guarantee. If you sign a personal guarantee as a member of an LLC borrower, your personal assets are exposed — the LLC structure only matters for liability that arises separately from the loan itself (contractor disputes, tenant issues, property accidents).
Many experienced investors still borrow through LLCs for the liability protection in those other areas, while fully understanding that the hard money lender will require and enforce a personal guarantee regardless of the entity structure.
Genuine non-recourse hard money loans are available in limited circumstances:
Non-recourse loans typically carry higher rates and more conservative underwriting to compensate the lender for the additional risk.
Know the terms, then check a real deal. Verify your email and receive 5 free Credits for a residential lender search or one quote-request batch to as many as four lenders. No card required.
Try It Free →