What is a Guarantee?
What is a guarantee?

A Guarantee is a contract where someone agrees to be responsible for the debt or obligations of another person (the debtor) in the event that the debtor defaults on the debt. This guarantor's obligation is limited to the debt that is the subject of the guarantee.

What are the benefits of using a guarantee?

Guarantees benefit both the Lender (Creditor) by allowing the Lender to provide a loan with assurances from the Guarantor that it will be paid back. The Debtor also benefits because he is able to obtain a loan where it might otherwise be difficult to secure a loan without the guarantee, especially if the Debtor has a poor credit rating or no collateral to offer the Lender.

What is a limited guarantee?

A limited guarantee is a guarantee that is limited to a specific dollar amount (e.g. $25,000).

What is "acceleration"?

If the Debtor fails to make the agreed upon payments when required, then he has defaulted on the loan, and the Lender can take action to recover the entire loan amount immediately from the Debtor and/or the Guarantor.

What does "acceptance of the guarantee is waived" mean?

This phrase means that the Guarantor is bound by the terms and obligations of the guarantee even if the Guarantor does not receive notice of the Lender's acceptance of the guarantee.

If I am the Guarantor of a limited guarantee, what happens if the Debtor borrows more money than I have agreed to guarantee, but the Debtor cannot repay the loan?

You are only liable for the debt up to the value of the limit imposed upon the guarantee. The Lender would only be able to go after the Debtor for any amounts over the limit.

If the Guarantor is an executive with a corporation, does this make it a corporate guarantee?

It would be a corporate guarantee if the executive is acting on behalf of a corporation (the guarantor) when he agrees to be responsible for the obligations and debts of the Debtor. If the executive is acting in his own capacity, then this would be a personal guarantee.

As the Guarantor of a continuing guarantee, what debts am I liable for?

You are liable for all obligations of the Debtor, including future debts owed by the Debtor to the Lender, even where the initial debt has been repaid.

Attestation and Signing Details
Does the guarantee need to be witnessed by someone?

Yes, someone that is not a party to the guarantee should witness and sign the document. Most jurisdictions require that a notary public witness the execution of the guarantee. However, some jurisdictions allow any person to witness the guarantee provided that person does not benefit from the guarantee or loan in any way.

What is a notary public certificate?

Some jurisdictions require that the guarantor acknowledge that he executed the guarantee and understood the terms of the guarantee. This acknowledgment is made in front of a notary public.

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