Personal Guarantee

A personal guarantee is a promise by an individual to repay a loan made to someone else, often a company they own. Many investors close DSCR loans in an LLC, and lenders commonly ask the members to sign a personal guarantee on the entity's loan.

The guarantee means that holding the property in an LLC does not by itself shield the owner from the debt. If the entity defaults and the sale of the property does not cover the balance, the lender may be able to pursue the guarantor for the shortfall, depending on the guarantee and state law.

Guarantees differ. Some cover the full debt; others apply only to specific acts such as fraud or unpaid taxes, a structure more common on nonrecourse commercial loans. Read the guarantee before closing, since it can matter more than the rate.

Further reading: Personal Guarantee on Wikipedia.