Debt Financing
Guaranty of payment: the lender comes for you first
Most borrowers assume the lender must chase the company first. On a guaranty of payment it can sue the guarantor first, for the whole balance.
Most guarantors assume the lender has to try the company first. Foreclose on the building, chase the entity, exhaust the collateral, and only then, if something is still owed, come to the guarantor. That assumption is wrong on the guaranty most commercial lenders use. A guaranty of payment lets the lender skip all of it and sue the guarantor first, on day one of default, for the entire balance, while the building still stands and the borrower still exists.
A guaranty of payment lets the lender come for you first, before the borrower and before the collateral. Most commercial guaranties are guaranties of payment.
Payment versus collection is the order of attack
A guaranty of collection is the version borrowers imagine. The lender must first pursue the borrower to judgment and come up short before it can turn to the guarantor. The guarantor is the backstop, reached last.
A guaranty of payment removes the order entirely. On default, the guarantor’s obligation is immediate and independent, and the lender may sue the guarantor without touching the borrower or the collateral at all. It can foreclose later, or never, and still collect the full debt from the guarantor now. Commercial guaranties are guaranties of payment by default, and the language that does this (“guaranty of payment and not of collection,” a waiver of the requirement to proceed against the borrower first) sits in the boilerplate most people skim.
The practical effect is speed and target choice. The lender points at whichever pocket is easiest to reach, and a guarantor with liquid assets is easier to reach than a half-empty building in foreclosure. The guarantor becomes the lender’s first move, not its last resort.
Joint and several turns “my share” into “all of it”
When a deal has several guarantors, three partners each with a third of the equity, borrowers assume each guarantees a third of the debt. Almost never. Commercial guaranties are joint and several, which means each guarantor is independently liable for the entire amount. The lender does not collect a third from each. It collects one hundred percent from whichever guarantor has the money, and leaves that guarantor to chase the others for their shares.
Put a number on it. A $1 million deficiency, three guarantors, two of them broke. Under joint-and-several liability the lender collects the full $1 million from the solvent one. Not $333,000, the whole million. That guarantor now holds a contribution claim against two partners who have nothing, which is worth exactly what they can pay, which is nothing. The partner who stayed liquid becomes the one who pays for everyone.
What this changes about signing
These two clauses decide who gets hit and how fast, and they are almost always drafted the lender’s way. A guarantor who understands them negotiates differently: a collection guaranty rather than payment, so the lender must work the collateral first; a cap on each guarantor’s share, or a springing full-recourse only on that guarantor’s own acts, so one partner’s liquidity does not become everyone’s backstop; a requirement that the lender pursue guarantors pro rata. Lenders resist all of it, and sometimes the answer is no. But a guarantor who does not ask has agreed, by signature, to be sued first and alone for the whole thing. The order of attack was negotiable right up until the closing, and the guaranty of payment is the clause that decided the lender comes for you before it comes for the building.