A completion guarantee is a sponsor or guarantor guarantee that the construction project will reach physical completion lien-free and within the construction budget, regardless of cost overruns, delays, or schedule failures. Standard on construction loans, even otherwise- non-recourse construction loans. The guarantor funds any shortfall to complete.
How is the guarantee different from recourse?
Recourse is liability for loan repayment. Completion guarantee is liability for project completion. A construction loan can be non-recourse for repayment but require a full completion guarantee, meaning the sponsor is on the hook to fund overruns to deliver the building, but is not on the hook to repay the loan if the completed project then fails to lease up.
When does the completion guarantee burn off?
On construction-to-perm structures, the completion guarantee typically burns off at substantial completion (often defined as certificate of occupancy). On a separate take-out structure, the guarantee runs until the construction loan is paid off by the perm financing. Some lenders extend the guarantee until stabilization (e.g. minimum DSCR or occupancy threshold).
What does the guarantor have to demonstrate?
Net worth and liquidity. Lenders typically require the guarantor to maintain net worth equal to the loan amount or some multiple of expected overruns, plus liquidity equal to several months of debt service or remaining-budget contingency. The guarantor must certify to these tests periodically during construction.
Sources
- Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations · Mortgage Bankers Association · 2026-Q1