Glossary

Completion Guaranty

A guaranty, common in construction lending, under which a sponsor or affiliate guarantees that a project will be completed lien-free and in accordance with approved plans and budget, regardless of cost overruns, and often funds any shortfall out of pocket.

Construction lenders require completion guaranties because a half-finished building is typically worth far less than either raw land or a completed asset, making project completion itself — not just eventual repayment — a critical lender protection distinct from ordinary payment or carve-out guaranties. The guaranty typically requires the guarantor to fund cost overruns from its own resources (rather than the lender being obligated to advance beyond the approved loan budget), to ensure the project is completed free of mechanic's liens, and to meet specified completion deadlines and performance standards, often tested against an independent construction monitor's certifications. Completion guaranties frequently convert or terminate upon achievement of specified milestones — substantial completion, issuance of a certificate of occupancy, or achievement of a stabilized debt yield or DSCR — after which the loan may revert to a standard non-recourse structure subject only to ordinary carve-outs.