Most investors spend weeks underwriting a deal and about ninety seconds on the guaranty. It's the last document in the stack, it's two pages, and by the time it appears you've already wired the deposit and scheduled the closing. So you sign it.
That signature is the single most consequential thing in your loan file that has nothing to do with the property. It decides whether a bad outcome ends at the collateral or follows you to every other asset you own. And it is routinely misunderstood by investors who assume that titling the property in an LLC settled the question.
It didn't. The entity determines who the borrower is. The guaranty determines who pays when the borrower can't. Those are two different questions, and the difference between a recourse vs non-recourse loan is where they get answered.
What Recourse Actually Means
Recourse describes what a lender can pursue if the loan defaults and the collateral doesn't cover the balance.
Recourse Loans
On a recourse loan, the lender can foreclose on the property and — if the sale proceeds fall short of what's owed — pursue the guarantor personally for the shortfall. That shortfall is called a deficiency, and the court order permitting collection on it is a deficiency judgment. Once entered, it can attach to bank accounts, other real estate, and future income.
Nearly all short-term investor financing is recourse. Fix and flip, ground-up construction, and bridge debt are underwritten on a business plan that hasn't happened yet — a renovation not yet done, a building not yet built, a sale not yet made. The lender is taking execution risk on you, so it wants you standing behind the paper.
Non-Recourse Loans
On a non-recourse loan, the lender's remedy is limited to the collateral. Foreclose, sell, absorb any shortfall. No deficiency pursuit against the guarantor.
Non-recourse is not charity — it's priced. It generally shows up on stabilized, income-producing assets where the property's own cash flow carries the debt and the lender doesn't need a person to backstop a business plan. Expect it to come with lower leverage, tighter debt-service coverage requirements, and a rate premium over the recourse alternative. Non-recourse means the lender absorbs more downside, and lenders charge for downside.
Why Your LLC Doesn't Make the Loan Non-Recourse
This is the misconception worth killing outright.
Holding title in an LLC protects you from operational liability arising out of the property — a tenant injury, a contractor dispute, a slip-and-fall. Those claims stay inside the entity. That protection is real and it's a good reason to own investment property in an entity, which our guide to borrowing as an LLC covers in full.
But a personal guarantee is a separate contract you sign in your individual capacity. It sits outside the LLC by design. You are not being sued as a member of the entity; you are being sued as a person who promised to pay. The corporate veil is not implicated, so piercing it isn't necessary.
An LLC with a full personal guarantee gives you liability protection and no debt protection. That's the standard structure in investor lending, and there's nothing wrong with it — as long as you know that's what you signed.
The Personal Guarantee Is Not One Document
"Personal guarantee" gets used as though it's binary. It isn't. There are at least five distinct structures, and the gap between the strongest and weakest is enormous.
| Guarantee type | What the guarantor is on the hook for | Typically found on |
|---|---|---|
| Full recourse | 100% of principal, interest, fees, and collection costs | Fix & flip, ground-up, bridge, most short-term debt |
| Limited / capped | A fixed dollar amount or percentage of the loan (often 25–50%) | Larger multifamily and commercial bridge deals |
| Carve-out ("bad boy") | Only losses caused by specified bad acts — otherwise non-recourse | Stabilized term debt, agency-style multifamily |
| Springing | Non-recourse until a defined trigger event, then converts to full recourse | Structured commercial loans |
| Burn-off / burn-down | Full recourse that reduces or terminates once performance tests are met | Construction and lease-up financing |
A burn-off guaranty is the one most investors never think to ask about. It says the guarantee steps down — or disappears entirely — once the project hits defined milestones: certificate of occupancy, a stabilized debt service coverage ratio sustained over two or three consecutive quarters, or a specified occupancy threshold. On a construction deal where you're personally guaranteeing a build you're confident in, converting to a burn-off structure at stabilization can be more valuable than fifteen basis points on the rate.
Nobody offers it if you don't raise it.
Bad-Boy Carve-Outs: How Non-Recourse Becomes Recourse
Almost no commercial loan is truly non-recourse. What's marketed as non-recourse is nearly always non-recourse with carve-outs — a document that limits the lender's remedy to the collateral unless the borrower does one of an enumerated list of things.
These are the "bad boy" carve-outs, and they exist because a lender willing to eat market risk is not willing to eat fraud risk. The typical list covers intentional misrepresentation or fraud in the loan application, misappropriation of rents or insurance and condemnation proceeds, intentional physical waste or destruction of the property, criminal acts, unpermitted transfers of the property or of ownership interests, unauthorized subordinate financing, and environmental liability.
Two structural points matter more than the list itself.
Loss-only versus full-recourse carve-outs. Some carve-outs make you liable only for the lender's actual losses caused by the bad act. Others are springing — the triggering event makes the entire loan balance recourse. A $40,000 misapplication of rents that triggers loss-only recourse costs you $40,000. The same act under a springing carve-out can put a multimillion-dollar balance on your personal balance sheet. Same conduct, radically different consequence, and the difference is a clause most borrowers skim.
The dangerous carve-outs are the ones that aren't about bad faith. Fraud and theft are easy to avoid. But lists often include items that a distressed but perfectly honest borrower can trip: filing a voluntary bankruptcy, failing to maintain single-purpose-entity status, letting a mechanic's lien go unbonded past a deadline, or permitting a transfer of member interests that you thought was routine estate planning. Those trigger during exactly the period when you can least afford them.
Where This Lands Across Funded Capital's Programs
Where a program falls on the recourse vs non-recourse loan spectrum tracks its risk profile, not the size of the borrower.
| Program | Typical structure | Terms |
|---|---|---|
| Fix & Flip | Full recourse, personal guarantee from members | From 8.75%, up to 90% LTC |
| New Construction | Full recourse; burn-off available case-by-case | From 8.75%, up to 85% LTC |
| DSCR Rental | Recourse standard; carve-out structures on qualifying files | From 6.00%, up to 80% LTV |
| Multifamily bridge | Recourse, value-add business plan | From 8.75%, up to 80% LTC |
| Multifamily stabilized term | Recourse and non-recourse options | From 8.00%, up to 75% LTV |
The pattern is consistent across the private lending market: the more the repayment depends on you executing a plan, the more likely the lender wants you personally behind it. The more it depends on the asset producing income it already produces, the more room there is to negotiate the guarantee down. An investor moving from flips into stabilized rentals is also moving along this spectrum — a transition our guide to refinancing hard money into a DSCR loan walks through.
What Actually Happens When a Deal Goes Bad
Recourse only becomes real at default, which is why it feels abstract until it isn't.
Here is the realistic sequence on a recourse loan. The loan matures before your exit. Default interest starts accruing on the full balance. Foreclosure runs — timeline varies substantially by state and by whether the process is judicial. The property sells at a foreclosure sale, typically below what an orderly retail sale would have produced. If that number is less than principal plus accrued default interest plus fees plus legal costs, the deficiency is what remains. Under a recourse guaranty, the lender may pursue you for it.
Note what drives the size of that deficiency: it is mostly time and fees, not the property being worth dramatically less than you thought. Which is why the practical protection against recourse exposure isn't a clever guaranty — it's not defaulting. Our breakdown of what happens when a hard money loan matures before your exit covers the options available at that stage, and the single most useful one is asking for an extension 45 to 60 days early rather than 5 days late.
Deficiency rules are state-specific. Some states cap deficiencies at the difference between the debt and the property's fair market value rather than the foreclosure sale price. Some impose short windows to file. Some restrict deficiencies on certain property types entirely. This is genuinely a question for a real estate attorney licensed where the property sits — Funded Capital is a lender, not your counsel, and you should treat guaranty language as something to review with a lawyer before signing, not after.
Five Things to Check Before You Sign
1. Is the guaranty joint and several? If you have three partners and the guaranty is joint and several, the lender can collect 100% from whichever one of you is easiest to collect from. Your recovery from the other two is your problem, not the lender's. Ask whether liability can be several and proportionate to ownership.
2. Are carve-outs loss-only or springing? Ask directly. Push to convert springing full-recourse triggers into loss-only wherever the conduct isn't fraud or theft.
3. Is there a burn-off? On construction and value-add deals with defined stabilization, ask what performance test would release or reduce the guarantee.
4. Whose signature is actually required? Lenders often require guarantees only from members above a threshold — commonly 20% ownership. A passive 10% partner may not need to sign at all. Confirm before you volunteer someone.
5. Does the guaranty cover the loan or the whole relationship? Some guaranty forms are drafted to cover "all present and future obligations" to the lender. That means the guarantee you sign on deal one silently attaches to deals two through six. If you plan to scale with one capital partner, this clause matters enormously.
Straight Answers Before You Sign, Not After
The right time to understand your guarantee is while you still have leverage — before the deposit is hard and the closing is scheduled.
Funded Capital lends across 44 states with term sheets in two hours and closings in as little as five days. Fix & flip from 8.75% up to 90% LTC, DSCR rentals from 6.00% up to 80% LTV, ground-up construction from 8.75%, and multifamily bridge and stabilized term debt with recourse and non-recourse options on qualifying assets. We underwrite the property and the business plan, not your tax returns.
We'll tell you what the guarantee looks like on your file when we issue the term sheet — not at the closing table. Run your numbers on the deal calculator, see how the process works, then apply online and get a term sheet the same afternoon. Brokers can register deals through our broker program.
Rates and leverage shown are program ranges and are subject to underwriting, property type, borrower experience, and market conditions. Nothing here is legal advice — have a licensed attorney in your property's state review any guaranty before you sign it.
Frequently Asked Questions
What is the difference between a recourse and non-recourse loan?
On a recourse loan, if foreclosure proceeds don't cover the balance, the lender can pursue the guarantor personally for the shortfall through a deficiency judgment. On a non-recourse loan, the lender's remedy stops at the collateral. In practice, the recourse vs non-recourse loan split falls along asset type: almost all short-term investor financing is recourse, while non-recourse tends to appear on stabilized, income-producing assets — usually with lower leverage and a rate premium. Apply now and we'll tell you which structure your deal qualifies for.
Does an LLC protect me from a personal guarantee?
No. The LLC protects you from operational liability arising out of the property — tenant injuries, contractor disputes, premises claims. A personal guarantee is a separate contract you sign individually, which sits outside the entity by design. The lender enforcing it isn't piercing the corporate veil; it's enforcing a promise you made in your own name.
Can I get a hard money loan with no personal guarantee?
Rarely on short-term rehab or construction debt, because the lender is underwriting a business plan that hasn't been executed yet. Where guarantee relief does show up, it's usually a reduction rather than an elimination — a capped guarantee, a carve-out-only structure on a stabilized asset, or a burn-off that releases you once the property hits defined performance milestones. The right question to ask a lender isn't "can you waive it" but "what would it take to reduce it."
What triggers a bad-boy carve-out?
Typical triggers include fraud or intentional misrepresentation, misappropriation of rents or insurance proceeds, intentional waste, unpermitted transfers of the property or ownership interests, unauthorized subordinate financing, environmental violations, and voluntary bankruptcy filings. The critical detail is whether a trigger creates liability only for the lender's actual losses or converts the entire loan balance to recourse.
Does a personal guarantee affect my personal credit?
An entity loan generally doesn't report on your personal credit the way a consumer mortgage does, which is one reason experienced investors borrow through entities as they scale. But that's about reporting, not liability — if the entity defaults and a deficiency judgment is entered against you as guarantor, that judgment is a matter of public record and can affect your personal financial profile and future borrowing.
Should I pay a higher rate to reduce my guarantee?
That's a math problem specific to your deal. Compare the annual dollar cost of the rate premium against the exposure you're eliminating and the probability you assign to a bad outcome. On a well-underwritten flip with a conservative ARV and a real rehab budget, most investors correctly conclude the cheaper rate is worth it. On a speculative deal in a slow market, the calculus can flip.