Personal guarantees on hard money loans

Hard money is nearly always recourse lending. Title is held by an entity, the note is in the entity's name, and behind it sits a personal guarantee from you - which means the lender's remedy is not limited to the property.

What the entity does and does not do

Holding title in an LLC gives you liability separation from third parties - a contractor injury, a slip and fall, a construction defect claim. It does not shield you from your own lender once you have guaranteed the debt. People conflate these constantly.

Types of guarantee

Full recourse: The default. You are personally liable for the entire balance, plus default interest, plus costs, if the collateral does not cover it.
Limited or partial recourse: Liability capped at a percentage or a dollar amount. Uncommon in hard money and worth asking for on a low-LTV deal.
Non-recourse with carve-outs ("bad-boy"): The property is the only collateral unless you do one of the listed bad things - fraud, misapplication of funds, unauthorised transfer, waste, environmental breach. Then it springs to full recourse. Read the carve-out list; some are broad enough to be triggered by ordinary mistakes.
Completion guarantee: Separate from payment. Common on construction loans: you personally guarantee the project gets finished, not just that the loan gets paid.

Questions to ask

Is the guarantee full, limited, or springing?
Is a spouse required to sign, and does your state's property law make that consequential?
Is there a completion guarantee separate from the payment guarantee?
Does the guarantee survive a sale of the property or an assignment of the loan?
What are the carve-outs, precisely?

The practical point

Questions people actually ask

What exactly is a hard money loan?

A short-term loan secured by real estate, made by a private lender rather than a bank, and underwritten mainly against the property rather than against you. The lender's core question is not can this borrower afford the payments but if this goes wrong, can I sell the collateral for more than I lent.

That single difference explains everything else about the product: it funds in days instead of weeks, it tolerates credit and income situations a bank will not, it is priced at 8.0% to 15.0% instead of mortgage rates, and it is written for 6 to 24 months rather than 30 years.

Why do people apply for hard money loans?

Three reasons, in order of how often they are the real one. Speed: a seller wants to close in ten days and a bank cannot. Condition: the property will not pass a conventional appraisal because it has no kitchen, so no conventional lender will touch it. Situation: the borrower's tax returns, credit, or entity structure do not fit an underwriting box.

Notice that none of those is the money is cheap. Hard money is expensive money that buys you access or speed. If you do not specifically need access or speed, you are paying a large premium for nothing.

Is a hard money loan a good idea?

It is a good idea when the cost of the money is smaller than the value of what the money lets you do, and a bad idea in every other case. That sounds obvious and it is routinely ignored, because the cost is quoted as a rate and the benefit is imagined as a profit.

Concretely: if the loan costs you $18,000 all-in over six months and it lets you capture a $60,000 spread you could not otherwise reach, it is a good idea. If it costs $18,000 to chase a $22,000 spread that assumes the rehab runs on schedule and the ARV holds, you have bought yourself a job with downside. Run it through the true-cost calculator before you decide, not after.

Is hard money lending a good idea?

From the lender's side this is a different question entirely - it is asking about investing capital in these loans rather than borrowing them. We do not cover the investor side of the trade, and note only that private lending funds are securities-adjacent, frequently illiquid, and not covered by deposit insurance. Talk to someone licensed before you put money in.

What are the benefits of a hard money loan?

Speed to close, measured in days rather than weeks. Willingness to lend against property a conventional lender will reject on condition. Underwriting that weighs the deal more heavily than your tax returns. Rehab funds available as a holdback, which no conventional purchase loan offers. And leverage on a purchase price that would otherwise need all cash.

Every one of those is a genuine benefit. All of them are paid for in the fee stack.

What are the risks of a hard money loan?

The honest list, roughly in order of how often it actually bites people:

The clock. Terms run 6 to 24 months. Rehabs run late. When the term ends and the property is not sold or refinanced, you pay an extension fee, or you default. Cost compounding on delay. Every extra month adds interest, carrying costs and possibly an extension fee at once. The exit not existing. A BRRRR that assumes a refinance at a certain value fails entirely if the appraisal comes in low. Recourse. Most hard money loans carry a personal guarantee, so the downside is not limited to losing the property. Speed of foreclosure. In non-judicial states a private lender can move far faster than a bank.