The short answer
A guarantor promises to repay if the borrower does not. Lenders judge a guarantor on net worth, liquidity, other debts and guaranties already given, real estate owned and experience. Recourse runs from full, where the guarantor owes the whole loan, through limited, to non-recourse with carve-outs for listed acts. SBA loans require a guaranty from each owner of 20 percent or more. Agency multifamily loans are generally non-recourse with carve-outs.
What a guaranty is
A guarantor signs a separate promise: if the borrower does not pay, I will. For most bank loans to a closely held business or a single-property company, the borrower is an entity with few assets beyond the collateral, so the guaranty of the people behind it is what gives the lender a claim on anything else.
This guide describes what lenders review and the forms recourse takes. It gives no advice on personal credit and no opinion on whether you should sign a guaranty. That is a question for your lawyer.
What a lender looks at
The five things a lender reads in a guarantor’s file
| Item | What it is | Where the lender finds it |
|---|---|---|
| Net worth | Assets less liabilities, with the lender’s own adjustments to stated values | Personal financial statement, backed by statements and tax returns |
| Liquidity | Cash and securities that can be sold quickly, not counting retirement accounts in many lenders’ practice | Bank and brokerage statements |
| Contingent liabilities | Guaranties already given, and other obligations that could fall due | The guarantor’s own list, tested against other loan documents and returns |
| Real estate owned | Each property, its value, debt, income and debt service, and the guarantor’s share | Schedule of real estate owned |
| Experience | A record with the same kind of property or business | Resume, references, the schedule itself |
Net worth is the headline and the least reliable figure. Guarantors value their own real estate and private businesses, and lenders discount what they cannot verify. Expect the lender to restate it.
Liquidity matters more than most guarantors expect. A guarantor with a large net worth held entirely in buildings cannot cover three months of a vacant property. Many lenders set a post-closing liquidity requirement: cash left after the down payment and costs. The amount is each lender’s policy or each program’s rule. Ask for it before you commit your cash to the down payment.
Contingent liabilities are where files go wrong. See the section below.
Global cash flow. For a guarantor whose income supports the loan, the lender combines the property’s or business’s cash flow with the guarantor’s other income and debts. Global cash flow explained works a full example.
The kinds of recourse
Recourse is the lender’s right to collect from someone beyond the collateral.
Recourse, from most to least
| Kind | What the guarantor owes | Where it is usual |
|---|---|---|
| Full recourse | The whole debt, with interest and costs. If there are several guarantors, usually each owes all of it, and the lender can collect from any one | Bank and credit union loans to closely held borrowers. SBA loans |
| Limited or partial | A stated amount or percentage, or the debt until a condition is met | Negotiated bank loans: a top slice, or a guaranty that reduces as the property stabilizes |
| Completion or carry guaranty | A promise to finish construction and pay overruns, or to cover interest and operating shortfalls | Construction loans, often alongside or instead of a repayment guaranty. See completion guaranty |
| Non-recourse with carve-outs | Nothing in the ordinary case. Losses, or the full debt, if a listed act occurs | Agency multifamily, life company and conduit loans |
Two phrases to read for in any guaranty:
- Joint and several. Each guarantor is liable for all of it. A 10 percent partner who signs is exposed to 100 percent.
- Payment, not collection. Most guaranties let the lender demand payment from the guarantor without first foreclosing on the collateral.
Carve-outs
A carve-out guaranty, often called a bad-boy guaranty, is the price of non-recourse debt. Freddie Mac’s Conventional Small term sheet, dated April 2026, states its recourse requirement in one line: “Non-recourse except for standard carve-out provisions.”
What the carve-outs are is set by each lender’s loan documents, and you must read them. In general they come in two groups.
- Loss carve-outs. The guarantor pays the lender’s actual loss from a listed act. Commonly listed: fraud or misrepresentation, misuse of rents, insurance proceeds or security deposits, waste, failure to pay taxes or keep insurance when the property produced the cash to do so, and environmental problems.
- Full recourse triggers. The whole loan becomes recourse. Commonly listed: a voluntary bankruptcy filing by the borrower, a transfer of the property or of control without consent, and a breach of the single purpose entity covenants.
The lists above are common practice, not a quotation from any program document. Fannie Mae’s and Freddie Mac’s own carve-out language was not opened for this guide. Have counsel compare the actual list with what you might ever need to do, especially the transfer and bankruptcy provisions.
A carve-out guarantor still has to qualify. Agency and conduit lenders test the net worth and liquidity of the person who signs, even though that person does not guaranty repayment.
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SBA’s guaranty rules
SBA loans are full recourse to the owners, by regulation.
Who must guaranty an SBA loan
| Rule | What it says | Source |
|---|---|---|
| Owners of 20 percent or more | “Holders of at least a 20 percent ownership interest generally must guarantee the loan” | 13 CFR 120.160(a) |
| At least one guarantor | Each loan must have the guaranty of at least one individual or entity. If no one owns 20 percent or more, at least one owner must give a full unconditional guaranty | SOP 50 10 8.1 |
| Others, when needed | SBA, or a lender using delegated authority, may require other individuals or entities to give full or limited guaranties “without regard to the percentage of their ownership” | SOP 50 10 8.1 |
| Spouses | Each spouse owning less than 20 percent must give a full personal guaranty when the combined interest of both spouses and minor children is 20 percent or more | SOP 50 10 8.1 |
| Property company and operating company | The operating company must be a guarantor or co-borrower, and each holder of at least 20 percent of either company must guaranty | SOP 50 10 8.1 |
| Seller staying on | A seller who remains as a partial owner after a change of ownership must give a full, unlimited guaranty whatever the percentage | SOP 50 10 8.1 |
The SOP also covers collateral from guarantors, including liens on personal real estate in some cases. See the 7(a) checklist. SBA does not require you to use an agent or broker.
Credit unions and banks
Credit unions. NCUA’s rule does not make a guaranty mandatory. Under 12 CFR 723.5(b), a credit union “that does not require the full and unconditional personal guarantee from the principal(s) of the borrower who has a controlling interest in the borrower must determine and document in the loan file that mitigating factors sufficiently offset the relevant risk.”
Banks. No federal rule sets who must guaranty a conventional bank loan. It is each bank’s policy. One rule does matter to the arithmetic: under the OCC’s lending limit rule, a guarantor can be treated as a borrower in some circumstances, so a sponsor with many guarantied loans at one bank can use up that bank’s limit to one borrower. See the legal lending limit guide.
The contingent liability trap
A contingent liability is a debt you owe only if something happens. A guaranty is the main one. Three ways it catches people:
It is left off. A guarantor lists personal debts and forgets the guaranty signed on a partner’s building four years ago. The lender finds it in the tax returns or the other lender’s documents, and now doubts the whole statement.
It is counted in full. Ten guaranties of $2,000,000 each, on ten properties owned 10 percent each, are $20,000,000 of contingent liabilities if they are joint and several, not $2,000,000.
It crosses loans. A guaranty, a cross-default clause or cross-collateralization can let trouble on one property reach another.
Worked example (hypothetical). A sponsor reports assets of $9,000,000 and liabilities of $5,000,000, for a net worth of $4,000,000. Liquid assets are $600,000. She asks a bank for a $3,000,000 loan on a new property and offers her guaranty.
Restated net worth. The bank values her five buildings at $7,200,000, not the $8,000,000 she stated, which lowers assets to $8,200,000 and net worth to $3,200,000.
Contingent liabilities. She has guarantied $6,500,000 of loans on three partnerships in which she owns one third. All three guaranties are joint and several. Her share of that debt is about $2,170,000 ($6,500,000 divided by 3). Her exposure is $6,500,000.
Liquidity. After a $750,000 down payment, of which $500,000 comes from her liquid assets and $250,000 from a partner, she has $100,000 left. One month’s payment on the new loan is about $21,000.
What the bank sees. Net worth of $3,200,000 against a new $3,000,000 guaranty and $6,500,000 of existing ones, and under five months of payments in cash. The net worth looked ample. The liquidity and the contingent exposure are what the credit memo will discuss.
Every figure is an assumption for the example.
Preparing a guarantor’s file
- A personal financial statement, signed and dated within 60 to 90 days, with a note on how each asset was valued
- Statements for every cash and securities account listed
- Two or three years of personal federal tax returns, with K-1s
- A schedule of real estate owned with ownership percentages
- A list of every guaranty given: lender, borrower, amount, whether joint and several, maturity
- A list of every entity owned, with percentage
- For experience: properties or businesses owned, with dates and outcomes
Send it only when a lender asks, and by a secure channel. See what a lender-ready package looks like.
What the public record shows, and what it does not
No public file used on this site records whether a loan had recourse, who guarantied it or on what terms. HMDA does not carry it. Call reports do not. SBA’s rules make every SBA loan a guarantied one, but the SBA file does not name guarantors and this site does not try to identify them.
What the record can do is point you toward the kind of lender. Banks and credit unions that keep their loans generally lend with recourse. Lenders that sell into agency programs or securitizations generally lend without it. Which one fits depends on the property, the sponsor and how much each values flexibility.
Questions to put to the lender
- Who must sign, and is each guaranty full, limited or carve-out only?
- Is it joint and several?
- Does any part fall away at completion, at stabilization, or as the loan pays down?
- What net worth and liquidity do you require of the guarantor, at closing and afterward?
- How do you count guaranties I have already given?
- For a non-recourse loan, may I see the carve-out list before I pay a deposit?
Terms used here
- Guarantor: A person or company that promises to repay a loan if the borrower does not. On a loan to an LLC or corporation, the guarantor is usually an owner.
- Personal guaranty: A signed promise by an individual, usually an owner, to repay a business or real estate loan personally if the borrowing company does not.
- Recourse: A lender's right to collect a loan from the borrower or guarantor personally, beyond the property or other collateral pledged for it.
- Non-recourse loan: A loan the lender can collect only from the property pledged for it, not from the guarantor personally, except for listed bad acts.
- Carve-out guaranty: A guaranty on a non-recourse loan that makes the guarantor personally liable only if the borrower commits listed acts, such as fraud or a voluntary bankruptcy.
- Post-closing liquidity: The cash and other liquid assets a borrower or guarantor still holds after paying the down payment and closing costs on a loan.
- Contingent liability: A debt a person or company would owe only if something happens, most often a guaranty of someone else's loan that the borrower then stops paying.
- Completion guaranty: A guarantor's promise to the lender that a project will be finished and its bills paid, without a promise to repay the whole loan.
- Global cash flow: The combined cash flow of a borrower, its owners and their other businesses, set against all of the debt payments those same parties owe.
- Debt schedule: A table of every loan a business or borrower owes, showing for each the lender, balance, payment, maturity date and collateral.
- Cross-collateralization: An arrangement in which two or more properties or assets secure the same loan, or each secures the borrower's other loans, so the lender can look to any of them if one loan defaults.
- Eligible passive company (EPC): A separate company that owns the real estate or equipment and leases all of it to the operating business, allowed under SBA rules when strict conditions are met.
Sources
Every rule and outside figure above comes from one of these, opened on . Dates are the source's own. Figures from this site's data carry their own source and date beside them.
- 13 CFR 120.160, Loan conditions (SBA): who must guarantee an SBA loan, retrieved .
- SBA SOP 50 10 8.1, Lender and Development Company Loan Programs (guaranties; eligible passive companies), dated .
- Freddie Mac Multifamily, Optigo Conventional Small term sheet (dated 4/26): recourse requirements, retrieved .
- 12 CFR 723.5, Collateral and security (NCUA): personal guaranty of principals, retrieved .
- 12 CFR 32.2, Lending limits, definitions (OCC): guarantors and the borrower, retrieved .
Next step: check the record
- Global cash flow, step by stepHow a lender combines the borrower's cash flow with the guarantor's income and debts.
- Size the loanThe largest loan under coverage, loan to value and debt yield tests.
- Lenders for multifamilyWhere non-recourse lenders appear alongside banks and credit unions that lend with recourse.
Keep reading
- Maximum loan calculator: The loan each test allows: DSCR, LTV and debt yield side by side, and which one binds.
- DSCR calculator: Cash flow over debt service. Type the cash flow and the loan terms, see the ratio and the cushion before it falls to 1.00x.
- Deal summary builder: Turn the facts of a deal into a clean one-page summary you can copy or print. Nothing is saved or sent.
- Global cash flow, explained step by step: A property can cover its loan while the people behind it cannot cover their other debts. Global cash flow is the test that looks at all of it at once.
- How bankers evaluate a commercial loan deal: A credit officer asks one question five ways: how will this loan be repaid, and what happens if it is not? Knowing the five tests lets you size a request before you send it.
- Investor commercial real estate loan checklist: On an investor property the rent pays the loan. The package is the evidence for the rent: who pays it, for how long, what it costs to collect, and who stands behind the borrower if it stops.
- Multifamily loan checklist for 5+ unit properties: A larger apartment loan can go to five kinds of lender. They want much the same package. They differ on recourse, term, prepayment, speed and what they ask of the sponsor.
- Construction loan package checklist: A construction lender is lending against a building that does not exist yet. The package has to show what it will cost, who will build it, where every dollar comes from, and how the loan gets repaid when it is done.
- SBA 7(a) loan package checklist: A 7(a) package is the bank's usual file plus SBA's own list. Know which items SBA requires and you can have them ready before the first call.
- What a lender-ready loan package looks like: A lender decides in minutes whether to keep reading. A package that answers the first five questions on one page, and backs each answer with a document, gets read.
- The legal lending limit, explained: A bank may not lend more than a set share of its capital to one borrower. The rule explains why a large loan gets shared, and why a lender can say a request is too big for it.
Questions people ask
What does non-recourse really mean?
The lender agrees to look to the property, not to you personally, if the loan is not repaid. Nearly every non-recourse loan has carve-outs: listed acts, such as fraud or an unpermitted transfer, that make the sponsor personally liable for losses or for the whole loan.
Who has to guaranty an SBA loan?
Under 13 CFR 120.160, holders of at least a 20 percent ownership interest generally must guarantee the loan. The SOP adds that each loan must have at least one guarantor, and that SBA or the lender may require others to give full or limited guaranties whatever their ownership.
Do loans I have guarantied for other people count against me?
Yes. A guaranty is a contingent liability. A lender lists every one, and may count part or all of the payments on guarantied debt when it tests your ability to support a new loan.
Cite this
Source: The Lender Report, Guarantor strength and recourse, explained, https://lender.report/guides/guarantor-strength-and-recourse/, data as of November 11, 2026.
General information, not legal, tax or credit advice. A lender's own policy decides what it will do; ask it for the policy in writing.
SBA does not require you to use an agent or broker for a loan application. SBA has not reviewed or endorsed this site.