Areas to Control A-G

Control - Guarantees

What Is A Guarantee?
A guarantee is a written promise by you (the guarantor) that the person who is obtaining credit (the debtor or borrower) will keep to all the terms and conditions of their contract (the credit contract, or loan agreement). The guarantee means that if the person borrowing the money is unable to repay the loan then you, as the guarantor, will become legally liable to pay whatever is owed.

Check the Risk First
Guaranteeing any type of loan for anyone else is risky. Unless you clearly know what is involved and the people you are guaranteeing is someone close to you or a family member you value or love dearly, then you should not sign any type of guarantee. If you have any doubts at all it would be best not to proceed - even if for a family member or friend.

Before you sign, get legal advice and read fully the obligations you have under the credit contract. You may be asked by the credit provider to provide extra security for the guarantee by way of a mortgage over your assets such as your family home.

The simple advice answer here is – say NO.

What to Do To Protect Yourself as a Guarantor
It is crucial that you seek legal advice before you enter into any legal agreements that:

  • Requires full disclosure to you of the borrower’s business accounts.
  • Provides a limit for the amount that you are going to give in your guarantee.
  • Requires that you be fully informed on the borrower’s business operations and decisions.
  • Clearly sets out the way in which the liability for the loan is going to be shared.
  • The lender will be required to give you, as well as the borrower, the full details of the credit contract.
  • As the guarantor you will have to be informed if the lender lends any more money to the borrower under your guarantee.

In considering whether to act as a guarantor for any person or party other than your own family, the view is that you should never guarantee. There is just too much risk involved and you can put your home and other assets at risk if you include them in the guarantee by way of a mortgage or other charge. The best position to take is: Never go guarantor for anyone if you can help it.