Avoid PG's (Personal Guarantees) for Limited Partners

4 Replies

We are hoping to close a small commercial loan ~ $400K with limited [equity] partners in the deal. A number of banks we spoke with want all members with more than 25% interest in the property to hold PG's (Personally Guarantees). Our LP's would not be interested in this structure, is there a way around this?

A few options we thought of:

  • 1) Create a separate investment LLC that we are managing members of. (One bank said this would work, another one said it would not.)
  • 2) [NOT IDEAL] Have investors use different names (for example, wife, husband, kids, etc.) so that they do not own a 25%+ share.

Thanks in advance for feedback.

For every plus there is a minus.

Most passive investors want non-recourse and that is generally for larger loans and CMBS type debt in the millions.

That is why the retail fund I am looking to set up I would need an investor minimum of a couple hundred k. You do not want to many investors with small amounts or it gets very messy. Also as I mentioned you can't really get the optimal loans you want with these small properties. 

Some banks might do it with a lower LTV with more down. If you are trying the regular down and want a premium rate and terms that will be a very tough sell.

Just go to the FDIC website and call up all the banks lending in that are to see if someone is in growth mode and they will underwrite riskier loans.

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