Definition
A guarantor is a person or company that promises to repay a borrower's debt if the borrower does not. In business lending, guarantors are usually the directors or owners, but lenders sometimes ask spouses, family members or related companies. A guarantor can be pursued for the full guaranteed amount, so anyone asked to guarantee should understand the risk and get independent advice.
Being a guarantor is a serious commitment, even when you are not the one running the business day to day.
Who is asked
Directors and owners of small businesses are almost always asked to guarantee. Lenders sometimes also ask spouses or relatives, particularly where property is in their names, or related companies in a group.
What it means
If the borrower defaults, the lender can demand payment from the guarantor, up to the guaranteed amount and often including costs. If several people guarantee jointly and severally, the lender may chase whichever guarantor it chooses for the entire debt.
Protect yourself
Read the guarantee, understand what it covers and get independent legal advice, separately from the borrower. Our guide to personal guarantees explains the main types. For your business’s finance options, make one enquiry.
Common questions
Can a guarantor be released?
Usually only with the lender's written agreement, often when the loan is repaid or replaced by other security.
Does being a guarantor affect my credit?
Lenders may check a guarantor's credit, and if the guarantor is pursued for the debt and does not pay, that can lead to negative credit information.
Sources and further reading
Related terms