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Do I need a guarantor for my business loan?

Your business loan lender will ask you for a guarantee when you take out a loan. It basically ensures that the business loan will be repaid.

There are 2 types of guarantees:

  • First party guarantee – the most common type, where you guarantee the loan with security in the form of an asset.
  • Third party guarantee – in some cases we allow someone else to guarantee your business loan with security from one of their assets.  

What are they guaranteeing?

In most cases the lender will ask the guarantor for a limited guarantee. This covers the debt plus 20% for any additional costs or interest incurred if loan repayments are delayed.

 

The agreement ensures that if you can’t make your business loan repayments your guarantor will pay them for you. In some cases, where business loan repayments are not being made, the guarantor has to sell their asset to cover the remaining debt.

 

What if I’m asked to be a guarantor?

This obligation shouldn’t be entered into lightly. Before making the commitment make sure:

  • You're comfortable the borrower can meet their business loan repayments and be willing to cover their repayments if they can't.
  • You're own financial plans wont be compromised. Even though you're not borrowing funds for yourself, you may be tying up equity in your property and restricting your ability to borrow funds in future.
  • You're happy to stick it out. You won't be able to pull out of your obligation as guarantor until the lender decides that the borrower is in a good financial position or the business loan has been repaid. 

Whatever your circumstances, always speak to your financial adviser before signing up as a guarantor.

If you’d like to discuss your options with a business manager, complete our short enquiry form and we'll contact you or call us on 132 772.