Conclusion

As is true for most things, learn to understand what the right questions (and answers) are for arranging debt financing for a particular situation.

When it comes to guaranties, borrowers must know what they are willing to offer and accept, what they are willing to trade off, how much they are willing to pay for that trade-off, and what are the most important issues to both borrowers and investors or partners.

It may be found that the best interest rate comes with a guaranty that is on a several basis and, further, that it can be "burned off" after less than 3 years. Having a contingent liability on a personal balance sheet of, for example, $100,000 (a borrower's pro rata or "several" portion of the total guaranty amount) may be palatable, especially if the interest rate premium for a nonguarantied structure will cost the project an extra $200,000 over the repayment period. On the other hand, a borrower may be well prepared to pay the premium, which may be nowhere near $200,000, for a nonguarantied transaction structure.

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