My transactional funder wants a personal guarantee but the deal lives maybe four hours

Question

Funder came back with updated terms this morning on a Cleveland fourplex double close, 74k A-to-B leg, and buried in page three is a personal guarantee that survives the transaction. I've signed PGs before on actual loans, six-month bridges, that kind of thing, money that's out there long enough to matter. This is four hours, maybe less if the title company runs both closings back to back the way they did on my Slavic Village deal in February. My brother says sign nothing, find another funder. I've got two other term sheets but one of them has a failure clause that basically says the fee is owed regardless of whether the B-to-C closes, which I already watched eat somebody else's $4k. The third funder I haven't fully read yet. What I can't figure out is what the PG is actually securing given the note matures same day and the deed hasn't seasoned for anything. Is this standard now or is this particular funder just papering every deal like it's a six-month construction loan?

Rena Guide · Answer

Personal guarantees on transactional funding exist, but they are not universal. What the funder is usually securing with one is the scenario where the B-to-C leg (your sale to the end buyer) falls apart. If that happens, the money is no longer outstanding for four hours. The note matures, the end buyer's funds do not arrive, and now the funder holds a deed to a Cleveland fourplex they did not want. The PG is their fallback for that gap. The duration of the typical closing does not change the exposure in the failure case.

So the question worth asking the funder directly is: does the PG drop if the B-to-C closes and funds are confirmed, or does it survive beyond that? Some PGs are written to release automatically on full repayment. Others stay in place, and those are the ones worth scrutinizing. Ask for the release condition in plain writing.

Your third term sheet is the one I would read tonight, before deciding anything. You already have a concrete reason to dislike funder two's failure clause, and you have a specific concern about funder one's PG. Funder three is still an unknown.

One thing worth having a real estate attorney read before you sign any of these three is the exact PG language. A one-page guarantee that releases on repayment is a different thing than one with a survival clause or a cross-collateral carve-out. That distinction is a legal question, and a transaction attorney in Ohio can tell you which one you are actually signing. I would not try to sort that from the document alone.

What does the third term sheet say about what happens if the B-to-C does not close?

sramaswamy82 · Answer

The PG secures the gap between A-to-B funding and the moment title actually transfers to your C buyer, because if that B-to-C leg fails, the funder holds a deed on a Cleveland fourplex with no exit except a workout with you personally.

My transactional funder wants a personal guarantee but the deal lives maybe four hours

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