You have probably heard of the term “Going Guarantor” before. This usually occurs when somebody requires assistance to obtain a home loan or some form of finance and the bank wants another person who holds assets to guarantee the performance of the borrower’s obligations under the Loan Contract.
The most common scenario is where a guarantor relationship arises are:
- When someone is buying a home and require their parents to provide their own property as collateral to secure the loan.
- A purchase of the property through a self-managed superannuation fund. In this scenario usually the trustee of the super fund is the borrower, however if this is a corporate trustee (a company) then the members of the fund or Directors of the trustee company are usually required to provide a guarantee.
- In the context of a company loan whereby a lender lends money to a company for example for business purposes, the directors of that company are usually required to provide personal guarantees.
The most important considerations for someone considering acting as a guarantor are:
- You are promising that the borrower will meet their obligations under the loan agreement and if they do not you may be asked by the lender to pay the amount outstanding.
- You are putting your personal assets at risk as if the bank cannot obtain the funds they need from the borrower they come after you and in turn your assets.
- You need to seek independent legal advice before deciding to act as guarantor for any person or entity.
- It is important that you carefully examine the financial situation of the borrower to make sure that, in your opinion, they can afford to make loan repayments.
Before entering into any contract to guarantee someone else’s debt, make sure you have received legal advice and if necessary advice from a financial planner and/or accountant.
Our solicitors can provide you with independent legal advice for all types of guarantee documents.
