Things to think about if you are asked to give a guarantee
Advice to prospective guarantors
Giving a guarantee for a commercial transaction is something you should not agree to do lightly. Guarantees are required when a lender, or perhaps a landlord, is not confident that the person or body entering into the arrangement has the ability to repay or honour the obligations.
Since you will gain no direct benefit from the loan, lease or other arrangement, it is not in your personal interest to give the guarantee. But the commercial reality is that the deal may not go ahead if you don’t, so it can be difficult to say no.
Guarantees can be limited to a maximum sum, and this is preferable to giving an unlimited amount, because generally all of your assets are in the frame and that includes your home, pension pot and savings.
As guarantor you will not be told by the lender, or landlord, that things are going wrong (because between them and their borrower/tenant matters are confidential), so it is important that you try to get regular updates and seek external evidence that all is well.
Whilst it’s not nice to think about arrangements going wrong, you should be realistic and accept they may do so. No one likes to lose money because a deal has gone wrong, but can you afford to lose the funds that may be at risk?
We can help you decide whether you really should give a guarantee, assist you to limit your liability as far as possible and, if then you decide you don’t want to give the guarantee, we can help you deal with clearly communicating your decision, in a positive fashion, to the other parties involved.
Contact us for further information and expert advice.