The Role and Responsibilities of a Guarantor in Business
A Guarantor is a person who agrees to assume the responsibility for another person’s debt or financial obligation if they fail to meet it in due time. Often, a Guarantor must provide a written assurance to the creditor that an unpaid balance will be paid off on the debtor’s behalf. In other words, a Guarantor serves as a ‘backup’ when taking out a loan or fulfilling a contract, along with the borrower or the primary borrower.
In a business context, a Guarantor can facilitate the process of getting a loan or a line of credit, as the presence of a trusted person who can vouch for the borrower can provide lenders more confidence in extending the financial benefit. Additionally, a Guarantor can also help negotiate better terms and contractual drawbacks.
When taking on the role of a Guarantor, the person needs to consider the responsibilities that come with the position thoroughly. They are contractually obligated to serving the debt and make sure all payments are made in due time. Furthermore, the creditor might also impose certain financial requirements when selecting a Guarantor, such as having a good credit score.
Risks and Benefits of Being a Guarantor
Before assuming the role of a Guarantor, it is essential to consider the risks and benefits associated with the responsibility.
The primary benefit of being a Guarantor is the ability to help someone close to you in times of need or help them get access to credit to achieve their financial goals. It also allows the Guarantor to build trust with the creditor.
On the other hand, being a Guarantor can be a daunting responsibility. If the primary borrower cannot pay back the loan, the Guarantor will have to shoulder the burden of the debt personally or will have their assets seized if they cannot come up with the payment. Further, being a Guarantor can be quite financially taxing, as the creditor can demand a bond or security against the default payment.
Legal Obligations of a Guarantor
A Guarantor takes on a legal obligation when agreeing to vouch for the borrower’s debt, and should, therefore, be informed of their rights and obligations related to the agreement. Firstly, the Guarantor must have knowledge of the terms and conditions of the contract and must ensure that all the requirements of the borrower’s account are met.
In addition, a guarantor must make themselves aware of the exact amount they are responsible for and understand that the creditor has the right to hold them to the repayment of the loan if the borrower fails to make the agreed-upon payments.
