Personal guaranties on a commercial mortgage

Investopedia describes a personal guarantee as an individual's promise to answer for a business debt. Wikipedia's article on a guarantee is the legal idea: a second person backs the primary obligor. On a commercial mortgage the primary obligor is usually a property entity. The human who signs beside it is the guarantor. A full guaranty covers the debt. A limited guaranty stops at a dollar amount, a percentage, or a kind of loss. A springing guaranty starts small, or starts as a carve-out, and grows to a larger liability if a listed event happens. Completion and payment guaranties show up when something must be built or when the lender wants the payment covered regardless. The labels overlap. The document controls.

A burn-off is a later reduction. The guaranty might fall away, or fall to a cap, if coverage stays above a test for a stated period. A guarantor covenant is the ongoing promise that sits next to the payment promise: a minimum net worth, a minimum liquidity, or a duty to send a personal financial statement. Breaking the covenant can be a default even when the property payment is current. None of those mechanics is promised here. They are what to look for on the draft.

SBA owners and Arizona spouses

SOP 50 10 is SBA's procedure for lenders and certified development companies. Guaranty requirements are part of it. The line sponsors hear is that each owner of 20 percent or more of the applicant signs a guaranty. The SOP in effect, and the SBA lender, decide. Capital Market Funds is not an SBA lender. The arrangement page is Arizona SBA 7(a). A personal credit file is a separate topic on credit scores for commercial loans. A score does not replace a guaranty.

A.R.S. 25-214 is Arizona's community-property statute on management and control. Spouses generally must join to bind the community on a guaranty, and on a transaction that encumbers community real estate. That sentence is a pointer, not advice about your marriage or your signature. Counsel reviews joinder. Do not rely on this paragraph to decide whether a spouse has to sign. The recourse overview is recourse versus non-recourse. Guaranty language also shows up in a term sheet and in the glossary.

What to ask before you sign

Ask whether the guaranty is full, capped, or springing. Ask what burns off, and what test has to hold. Ask which personal covenants you must keep, and what a missed liquidity test does. Ask who else must sign. Then give the draft to counsel. This firm arranges financing. It does not tell you the guaranty is acceptable.

Capital Market Funds is not a Fannie Mae DUS lender. The office is 7373 E Doubletree Ranch Rd #255, Scottsdale, AZ 85258. The phone is (480) 495-8072. Capital Market Funds, LLC - CBK-2007014 - Commercial Mortgage Banker and NMLS 1445066. A conversation about a guaranty is not an application and not a commitment.