Loan guarantor motivation

16 Replies

@Jingwen Dunford . You're basically asking someone to throw their net worth around and use it to get you a large loan.

From the guarantors perspective I would view this as a fairly risky proposition so I’d want to be compensated for this. I’d probably charge an origination type fee equal to 1 percent of loan amount and want equity of 10-20 percent

@Caleb Heimsoth . Hi Caleb. Thanks so much for your response and input. I really appreciate it. Yes I'm offering 1-3% of loan amount as compensation, for a non-recourse loan. And 4-5% for a recourse loan. Other than the compensation part, what others thing would hedge the risks, or spark the interest for a potential loan guanrantor? What would be an offer that a potential loan guarantor cannot resist?

Thanks a million!

Originally posted by @Jingwen Dunford :

@Caleb Heimsoth. Hi Caleb. Thanks so much for your response and input. I really appreciate it. Yes I'm offering 1-3% of loan amount as compensation, for a non-recourse loan. And 4-5% for a recourse loan. Other than the compensation part, what others thing would hedge the risks, or spark the interest for a potential loan guanrantor? What would be an offer that a potential loan guarantor cannot resist?

Thanks a million!

Well you brought up another good point that I forgot, recourse vs non-recourse.

I personally would only do this for a non-recourse loan (that my attorney would need to confirm).  

That way I get paid my fee, you get your property and if the bank forecloses I don’t lose anything.  If it’s recourse that all changes a lot and adds a lot more variables.  I personally wouldn’t do that, but some people probably would.  

Originally posted by @Jingwen Dunford :

@Caleb Heimsoth does the particular asset type/deal matter to you? For example, you would only be a loan guarantor to an apartment building, or mobile home park. Etc?

First I want to commend you for offering what you’re offering for this person in the first place.  You’re probably not to far off on what they should reasonably expect.  I see a lot of new people come on here and just expect the moon in exchange for nothing, which you aren’t doing here.

As far as if I care about the specific deal, that really depends on if it’s recouse or non-recourse.  What loan amount are you looking for? I personally would prefer an apartment complex.  Re-course vs non-recourse is going to be due mostly to loan amount.  You’ll likelt need over 1M in debt to get non-recourse debt 

@Caleb Heimsoth Thank you. I understand that it's a business, not a fairy tale, and everything has a price. And there absolutely nothing wrong with it. In fact, that's great that people want to get compensated, would make me more nervous if they didn't want compensation.

I'm looking at $2 million in loan amount, non-recourse. Apartment complex is one of my biggest focus areas.

@Caleb Heimsoth Hi Caleb. Another question: You mentioned that you would prefer an apartment complex. Since you, as a loan guarantor, are completely passive and won't have to worry about management. Why is there still a preference. The money in your pocket is still the same, as long as it's a good deal, right?

Originally posted by @Jingwen Dunford :

@Caleb Heimsoth Hi Caleb. Another question: You mentioned that you would prefer an apartment complex. Since you, as a loan guarantor, are completely passive and won't have to worry about management. Why is there still a preference. The money in your pocket is still the same, as long as it's a good deal, right?

 Just personal preference.  I know a lot more about apartments then I do mobile home parks.  A lot of this stuff is just an opinion.  You find an actual loan guarantor and they may want something completely different.

Have you done any deals before? If not, I would consider a smaller deal to start off with. 

Originally posted by @Caleb Heimsoth :
 I personally would only do this for a non-recourse loan. That way I get paid my fee, you get your property and if the bank forecloses I don’t lose anything.  If it’s recourse that all changes a lot and adds a lot more variables. 

Something to consider here is that a non-recourse loan does not mean there's no recourse.  Even non-recourse loans have carve-outs, some of which can turn the entire loan to a full-recourse loan.

Just a couple of examples of carve-outs are:

  • The owner absconds with the money that was supposed to be used to pay property taxes.  The guarantor is on the hook for the absconded money.
  • The same thing could happen with funds that were intended to be used to renovate the property.
  • If the borrower committed fraud in applying for the loan, the entire loan can turn recourse.
  • If the borrower declares bankruptcy, the entire loan can turn recourse.

Certainly each loan is different and carve-outs vary, but just because it's a non-recourse loan doesn't mean that a guarantor gets to collect a fee and rest easy knowing that they aren't on the hook for anything.

It could be one or all three, depending on the guarantor. Most guarantors take 5%-10% (I know someone who took 20%) of the GP. Others get a fixed amount paid when you close the deal, but most guarantors are interested in equity. They can sometimes ask for a personal guarantee from you as well. 

Every lender wants to guarantee their loan, even in a non-recourse loan. It would require a net worth = loan amount and liquidity = 9-12 months of debt payments.