Credit partner / personal guarantor

[Hiro Kitagawa]

Hi All,

Recently I met up with a gentleman who has a few REI businesses. Very personable guy, I liked him. We discussed REI over lunch and he mentioned he is looking for a credit partner to complete a current project and suggested I may be interested in becoming one. I don't know if the two are the same but essentially it's a personal guarantor for his LLC to obtain business line of credit, approx. $150,000.

My biggest concern is a potential default as I would be personally liable and if I could be protected in some way. He mentioned that I would be a guarantor as well as a member of an LLC that owns this one property as well.

To me the best way to minimize my risk would be to have a contrast stating in case of a default, I keep the property or some other collateral. Would that be something that’s common/normal to ask, and does anyone have any other input on credit partner and/or a guarantor?

[Don Konipol]

when you co sign and or guarantee a note, it is nowhere near the same as being a hard money lender.  As a lender you will be receiving a (usually) first position lien on the property.  As a guarantor, if every possible favorable (to you) provision is executed as a side agreement, you will be able to assume the owners position in case of default.  if no favorable side agreements are obtained, you can be sued by the lender for the complete amount of the note, and your only recourse is to sue the property owner - a person you indicate who is already overextended.

About 50 years ago there was the case of a minor Rockefeller heir who inherited $185,000,000.  He collected guarantor fees of in excess of $15,000,000 per year for 2 years and still had all the interest, dividends and capital growth on his   $185,000,000 principal.  In year 3 a couple of his guarantees were called.  After significant time and litigation he filed for bankruptcy protection. He ultimately exited bankruptcy with 90% of his assets lost.