“Warm Body” Personal Guarantees in DSCR Lending

Rule

Lendency requires at least one "Warm Body" personal guarantor who owns at least 20% of the borrowing entity. While additional individuals may serve as guarantors to strengthen the file, at least one person with a significant ownership stake (20% or more) must be a party to the guarantee.

Lendency Insight

The 20% ownership rule ensures that the person guaranteeing the loan has a meaningful financial interest in the asset's performance. However, this doesn't mean every guarantor has to meet that threshold. For example, if a father owns 20% and a son owns 5%, both can be guarantors, satisfying our requirement for a 20% owner while allowing the son to build his credit and experience. This flexibility is key for multi-generational investment teams or partnerships where one member provides the "muscle" (credit/liquidity) and others manage the operations.

Common Scenarios & FAQs

• Does every owner have to be a guarantor? No. Only owners with 20% or more are required to guarantee. However, you can choose to add owners with smaller stakes as guarantors if their credit scores help the deal.

• What if no one owns 20%? In the rare case of a highly fragmented LLC, we require the ownership structure to change such that at least one qualifying member owns 20% or more. Alternatively, the loan may be closed with a different, less fragmented LLC.

• Can a non-owner be a guarantor? Generally, we require the guarantor to have an ownership interest in the borrowing entity.

Key Definitions

• Warm Body Guarantee: A colloquial term for a personal guarantee provided by a human being rather than another business entity.

• Ownership Stake: The percentage of an LLC or Corporation owned by an individual, usually defined in the Operating Agreement.