Utilizing a real options approach, we develop an investment and financing model with a partial guarantee.

We explicitly derive the pricing and timing of the option to invest for the cash flow with both diffusion and jump risk.

If the funding gap rises, the option value decreases but the investment threshold first declines and then increases.

The larger the guarantee level, the lower the option value and the later the investment.

Raising guarantee levels reduce borrowers’ risk-shifting incentives but do not change their incentives to replenish equity.