In conclusion to this three part series of posts on commercial mortgages, this post will provide information on a very sensitive issue – guarantees. It is important to note that banks and lenders all treat guarantees differently so make sure you know what you are prepared to give before negotiating.
There are two (2) basis types of guarantees:
Personal Guarantee – an individual will be held responsible for assuming the debt in the case of a borrower who does not repay the mortgage
Corporate Guarantee – a company that will be held responsible for assuming the debt in the case of a borrower who does not repay the mortgage
Getting a non-recourse commercial mortgage or a commercial mortgage that does not require a guarantee is available in very few cases and is certainly not standard practise among banks and lenders. The financial strength of a borrower can determine how much the guarantees will need to be and the ability to not have to provide a guarantees is based on many factors including net worth and collateral security.
Borrowers who have not had commercial financing tend to be resistant or reluctant to give a guarantee. To a bank or lender this can demonstrate a lack of confidence of behalf of the borrower in their own deal. For borrowers that have had commercial financing in the past, the issue of guarantees is simply an item to negotiate.
Guarantees are serious business.
If you questions about guarantees, post them below or email dylan(at)bridgecap.ca