What Does It Mean To Be A Guarantor?

A guarantor promises a lender that if the borrower fails to repay a loan or breaches the loan agreement, the guarantor will meet those obligations.

Guarantees are commonly required where the borrower lacks sufficient assets, income or credit strength to obtain finance independently. A common example is company directors personally guaranteeing a business loan. Although the company receives the funds, the directors may become personally liable if the company defaults.

Many loan documents are drafted as a Guarantee and Indemnity. The guarantee is your promise to answer for the borrower’s debt, while the indemnity is a separate obligation to compensate the lender for loss. Depending on its wording, an indemnity may give the lender broader rights than the guarantee itself.

For more information refer to our article Personal Guarantees: The Risk That Could Cost You Your Home or speak with one of our experienced Team today on 8525 2700.