Personal Guarantee (PG) on Commercial Property Loans
A personal guarantee pledges the private assets of an individual borrower to secure a commercial mortgage. This unsecured written promise is not tied to a specific asset, such as a house, so any part of the borrower's assets can be used to repay the debt.
If the investor defaults on the loan, a personal guarantee allows the lender to seek compensation for damages by going after the owner’s home, cash, and any other assets. Even if the entity that owns the property declares bankruptcy, the lender can still demand that the guarantor repay the value of the loan. Only a personal bankruptcy, in addition to business bankruptcy, would discharge this debt.
Personal guarantees are a common requirement when a business does not have enough credit to adequately secure the loan according to the lender's preferences or to address perceived risks in the commercial mortgage lender’s underwriting. Many lenders prefer personal guarantees because they believe that commercial property owners will be more cautious and less likely to default if their own finances are strongly tied to the successful payment of the loans.