Cautionary Note for Guarantors

In the current banking climate it is very common for lenders to request guarantors where they are lending to a company and need extra security to cover the loan.

Most lending institutions have their own printed guarantee forms and it is common for these to be sent to potential guarantors for signature with a request, or in some cases even a requirement, that the potential guarantor takes independent legal advice.

However not all guarantors seek legal advice and some lenders (having given guarantors the opportunity to take advice) are prepared to accept the guarantee without legal advice having been given.

To not seek advice is very dangerous for the guarantor as guarantees are highly technical documents and small variations in wording can have dramatic effects.

A basic guarantee only makes the guarantor liable where the borrower breaches their contract with the lender – most commonly by not paying interest or failing to repay the loan on the due date. In those circumstances the guarantee can be called on and the guarantor is liable to pay to the lender anything the...