Anyone who owns 25% or more of the borrowing entity, directly or indirectly, will be required to execute a personal guaranty. If the ownership is split so finely that no single member reaches 25%, the guaranty is typically signed by several members who in aggregate own at least 51% of the entity.
That is the answer. The rest of this page is the part that costs partnerships money: how "indirectly" reaches through a holding company, why owning 19% is not a safe harbor, what the aggregate rule does to a five-member LLC, and what the signature obligates you to once it is on the page. Every number below comes from our Small Balance Commercial program guidelines effective 8/3/2026.
The 25% rule, stated exactly
The guideline language is short and it is not hedged at this level. Individuals or legal entities which own 25% or more of the borrowing entity, directly or indirectly, will be required to execute a guaranty.
Two words in that sentence do more work than people expect.
"Or legal entities." The threshold does not only capture natural persons. If a holding LLC owns 40% of your borrowing entity, that LLC is itself within the class required to execute a guaranty, and the humans behind it are reached by "indirectly."
"Will." At 25% and above the guideline uses a mandatory verb. Below 25% it switches to permissive language. The line between "will be required" and "may be required" sits exactly at 25%.
The signature list is an underwriting output, not a borrower declaration
The same section assigns the work: the underwriter, along with the paralegal, must analyze the structure of the borrower and identify the entities and individuals that require a credit review and that may be required to provide a guaranty. Entity structures are separately evaluated for eligibility and documentation.
Practically, the list of signers is produced by someone reading your operating agreement and formation documents, not by what you wrote on the application, and it can grow after the file is opened. Our legal review may request additional documents or affidavits to validate membership ownership. A cap table typed into an email is not what validates ownership. The operating agreement, the certificate of formation or incorporation, and the stock certificates or partnership agreement are.
"Directly or indirectly" is where partnerships get caught
The structure that surprises people is two levels deep. A single-purpose LLC holds the property and borrows. Above it sits a holding company or family LLC. The individuals are at that second level, and none of them appear on the borrowing entity's own membership list.
The threshold reaches through that. The rule is written as ownership of the borrowing entity "directly or indirectly," and the background-search requirement is written the same way: it covers all parties which control the borrower, any party which owns 25% or more of the borrower directly and indirectly, and all entities within the layered ownership structure. Every entity in the chain is inside the review, not just the one on the note.
Here is the part to be careful about. The guideline states the threshold but does not publish a formula for computing indirect ownership. It does not say you multiply percentages down the chain, and it does not say you do not. What it says is that the underwriter and paralegal analyze the structure. Do not build a structure on the assumption that a particular arithmetic keeps someone under 25%, and do not assume a person plainly behind the deal is outside it because a spreadsheet says 24.5%.
| Structure | What the ownership test reaches |
|---|---|
| Single-member LLC | The member signs. Direct 100% ownership. |
| Two members at 50/50 | Both are above the threshold. Both sign. |
| Four members at 25% each | All four are at the threshold. All four sign. |
| Five members at 20% each | Nobody reaches the individual threshold, so the aggregate rule applies and a group totaling at least 51% signs. |
| Borrowing LLC owned by a holding LLC | The holding entity is within the class required to guarantee; the individuals above it are reached through indirect ownership. Every entity in the layered structure is inside the background review. |
| Revocable trust as a member | Eligible. The trust agreement and certificate of trust are part of the legal file. |
| Irrevocable trust as a member | Ineligible, including where the irrevocable trust is only a member. |
| Member entity with no identifiable natural person behind it | Ineligible where we cannot establish a natural person. |
When nobody owns 25%: the aggregate rule
This is the provision almost nobody publishes, and it is the reason "we are all minority members, so none of us has to sign" is wrong.
In the event that no guarantor owns at least 25%, the guaranty is typically signed by multiple guarantors who in aggregate own at least 51% of the borrowing entity. That language was added in a 5/15/2025 update, so an older summary of our program may not show it.
Read what it does. It converts a threshold test into a coverage test. The file does not stop at "no single member qualifies"; it moves to "assemble enough members to cross a majority."
An illustration with invented figures. Take an LLC with five members at 20% each. No member reaches 25%, so none is individually captured. Under the aggregate rule the guaranty would typically be signed by enough of them to cross 51% together, which with equal 20% stakes means at least three of the five. Two members total 40% and do not clear it. These figures are illustrative only.
The guideline does not say which members are selected when several combinations would satisfy the aggregate test. It is silent on that, and I am not going to invent a selection rule. Expect the conversation to be about which of your members can clear the credit, background and reserve requirements described below, because a signature from someone who cannot pass those gates does not help the file.
Hold on to the word "typically." The aggregate rule is written as the usual outcome, not an absolute, and the sentence before it preserves our ability to require full recourse below 25%.
Owning less than 25% is not a safe harbor
The guideline includes a sentence that people skip: in certain situations, we may require full recourse from individuals with less than 25% ownership interest.
That is permissive, not mandatory, and it is open-ended. The guideline does not enumerate the situations that trigger it, and I will not fill that gap with a plausible-sounding list, because the document does not contain one.
The credit-review requirement has the same shape. Tri-merged credit reports are required on all individual guarantors, principals or controlling parties with a 25% or greater direct or indirect ownership interest in a legal entity borrower. And in certain situations we may pull a credit report on individuals with less than 25% ownership interest based on the review of the borrowing entity structure.
The below-threshold discretion exists on both the credit side and the recourse side, and both turn on the same thing: what the structure looks like when someone reads it.
The person who owns nothing
A manager or controlling holder who does not hold a membership interest may be required to sign a personal guaranty. A controlling holder or manager is defined in the guideline as any individual or entity with the authority to direct the activities of the borrowing entity or to act on behalf of the company, for example borrowing funds, dissolving the entity, or removing members, without the need for unanimous or majority member consent.
One wrinkle worth naming. The body of the current guideline says such a person may be required to sign. The change log entry for the 10/3/2025 update describes the same change as: any managing member or controlling holder who is not a borrower must be a personal guarantor. The operative text in the 8/3/2026 document is the permissive one; the change log is stricter. Where they differ, plan around the stricter version and confirm on your file. The mechanics of non-owner control are their own subject, covered on a separate page.
What the guaranty actually obligates you to
Read this part slowly. It does not go away when the deal goes well or badly.
Joint liability. All parties appearing on the note or loan guaranty assume joint liability for repayment of the debt. The guideline does not allocate that liability in proportion to ownership. A 26% member and a 74% member both appear as parties assuming joint liability for the debt.
Liability cannot be capped at your stake. In no event can personal liability be limited solely to the borrower's or guarantor's interest in the business or in the secured property. That forecloses the most common request we hear: "cap my exposure at my share of the LLC," or "limit it to the building."
Recourse. Recourse appears in the guarantor eligibility requirements across all program types. The guideline defines it as the legal right of a lender to seek repayment from the borrower's or guarantor's unpledged personal property, in addition to the property pledged as collateral. The glossary also carries nonrecourse and carve-out guaranty as general industry terms, but the guideline does not describe a nonrecourse structure as an option under this program.
Everything a signature pulls into the file
Adding a guarantor is not a formality. Each one brings documentation and each one has to clear gates. That matters when you choose which members make up an aggregate group, because the wrong three can slow a file down considerably.
| Requirement | What applies |
|---|---|
| Tri-merged credit report | Required on all individual guarantors, principals or controlling parties with 25% or greater direct or indirect ownership in a legal entity borrower. May be pulled below 25% based on the entity structure. |
| Credit report age | Personal credit reports for all individual borrowers or guarantors must be dated within 120 days of the note date. |
| Background search | On all parties which control the borrower, any party owning 25% or more directly and indirectly, and all entities within the layered ownership structure. Not applicable to a legal entity borrower incorporated less than 6 months before final approval. |
| Minimum FICO | A minimum FICO of 650 is required for the primary guarantor, and a minimum of 640 for all other guarantors. With multiple borrowers or guarantors, interest rate and leverage are based on the guarantor with the highest middle score; the guideline separately states all other borrower/guarantors must have a minimum FICO of 640. |
| Reserves | On purchase and rate-and-term transactions, all borrowers and guarantors provide evidence of six or more months of liquid reserves, measured in months of the qualifying principal-and-interest payment. Eligible assets may be combined. |
| Personal tax returns | Two years of federal personal returns or transcripts with complete schedules for all individual guarantors under the Complete program. Not applicable for Bank Statement, Investor Lite Doc or No Doc Streamline. |
| Personal financial statements | Current statements for all guarantors, or a recent liquidity statement or CPA-certified net worth, on larger loans. |
Two honest notes on that table.
First, the FICO row carries a tension present in the document itself. One line says a minimum FICO of 650 is required for all guarantors; another says all other borrower/guarantors must have a minimum FICO of 640. The guideline does not reconcile them explicitly. Do not assume the 640 floor applies to you.
Second, the net-worth trigger is stated two ways. The guarantor eligibility table says net worth must be at least equal to the loan amount, required only for loans greater than $1MM or when total exposure to one borrower exceeds $1MM. The document checklist says personal financial statements with a combined minimum net worth equal to the loan amount are required for loans of $1MM or more. Greater-than and at-or-above are not the same test at exactly $1,000,000. If your loan sits on that number, ask. The requirement itself is covered on its own page.
One more multi-guarantor mechanic. Where a file has more than one guarantor, the guarantor with the passing FICO score must also have the passing Optic score to qualify, and at least one guarantor needs to meet the program requirements. Pricing is based on the guarantor with the passing FICO and Optic score. The guideline presents its worked examples in the context of No Doc eligibility, so treat that as document-type specific rather than universal.
Structures that fail before the guaranty question is reached
Sometimes the answer is not "who signs" but "this entity cannot borrow as it stands."
Loans are available to for-profit legal entities wholly owned by individuals who are US citizens or permanent resident aliens. The entity must be domiciled in the United States, have natural person members, and be in good standing. LLCs, LPs, partnerships, corporations and revocable trusts are eligible forms.
Not eligible: irrevocable trusts, including where an irrevocable trust is a member; trusts or LLCs whose members include other LLCs, corporations, partnerships or trusts where we cannot establish a natural person behind the structure; trusts or LLCs where a power of attorney is used; foreign nationals; parties with diplomatic immunity status; applicants in the country on temporary status, a work visa or any other non-permanent residency; life estates; guardianships; community land trusts; 501(c)(3) and non-profit organizations; and borrowers, guarantors or LLCs with any ownership in a federally illegal business, regardless of whether that income is used to qualify.
The common thread: the guaranty chain has to terminate in identifiable natural persons who are eligible to sign. A structure that ends in another entity, or in a person who cannot be a guarantor, does not have a guaranty problem. It has an eligibility problem, and that gets solved first.
Map your signature list before you apply
Do this on paper before you spend money on an appraisal.
1. Write the borrowing entity's direct membership, with percentages, from the operating agreement rather than from memory.
2. Write every entity above it, and the individuals above those entities, until every branch ends in a natural person.
3. Mark everyone at 25% or more, direct or indirect. Those are your required signers.
4. If nobody reaches 25%, build a group that together reaches at least 51%.
5. Read the operating agreement for anyone with authority to act unilaterally for the company. Managers and controlling holders belong on the list even when they own nothing.
6. Check each prospective signer against the credit, background and eligibility gates before you nominate them. A signer who cannot clear them is not a solution.
7. Confirm which assets cover the reserve requirement. Eligible assets of all borrowers and guarantors may be combined, verified at approximately the same time to prevent double counting of funds.
If step 2 produces a chain you cannot draw in five minutes, that is useful information. Layered structures are underwritable, but the review reaches every entity in the chain and the timeline reflects it.
What this page does not do
This page explains ownership thresholds for a required guaranty under our SBC program guidelines effective 8/3/2026. It is not an approval, a quote, a commitment to lend, or a promise about your file.
It does not tell you what your executed guaranty instrument says. Guaranties are legal instruments with state-specific consequences, and how liability operates against your personal assets is a question for your own attorney, not a guideline summary.
It does not cover the mechanics of a non-owner manager or controlling holder being required to guarantee, which has its own page, or the net-worth requirement above the exposure threshold, which is covered separately. It does not address entity formation, choice of state, or the tax treatment of a guaranty, all of which belong to your attorney and your accountant.
It does not price your loan or tell you whether your specific members will be accepted as guarantors. The guideline reserves discretion in several places quoted above, and where it says "may" or "typically," I have not converted that into a promise. Your signature list is produced by underwriting and legal after they read your actual documents. The point of this page is that the list should not surprise you.
Guideline SBC 08/03/2026 · Reviewed August 31, 2026
Published August 31, 2026 · Updated August 31, 2026
How to use this guide
This article is educational guidance, not an offer or commitment to lend. Rules, property facts, credit, leverage, documentation, and full underwriting still control any actual scenario.