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What You Need To Ask Yourself Before Signing A Guarantee

Are You Signing A Guarantee? Ask Yourself these 4 Questions So you’ve been approached by someone waving a wad of papers and need to ask you to sign them, just as a formality. Naturally you ask what they are and are told “it’s just a guarantee that Bill Smith/Bill Smith Pty Ltd wants so that they will […]

What You Need To Ask Yourself Before Signing A Guarantee

What You Need To Ask Yourself Before Signing A Guarantee

By Aylward Game - Jun 13, 2016 Financial

Are You Signing A Guarantee? Ask Yourself these 4 Questions

So you’ve been approached by someone waving a wad of papers and need to ask you to sign them, just as a formality. Naturally you ask what they are and are told “it’s just a guarantee that Bill Smith/Bill Smith Pty Ltd wants so that they will lend me some money/provide me with goods or some similar reason”.

WHAT DO YOU DO?

First of all, and we write this based on our significant experience in the insolvency and credit industries, STOP and do not sign anything before you understand the following terms.

Debtor – Person who is seeking some form of credit/goods or services

Creditor – person who is providing some form of credit/goods or services

Guarantee – a promise to be liable for another’s liability

Guarantor – A Guarantor is the party that promises to repay a debt if the debtor fails to meet their obligations to the creditor. The Guarantor may be asked to additional security for their guarantee.

There is no question that becoming a Guarantor is risky business.  If for any reason the debtor fails to meet their obligations then the creditor has the right to pursue the Guarantor. As a Guarantor, your personal credit history could be affected, if you’re unable to maintain the contract.

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Now that you understand the parties in a guarantee you need to  ask yourself the following 4 questions.

1 – Do You Understand Your Rights and Obligations Under the Guarantee

  • Documents from the Creditor

The creditor, particularly on loan contracts, must provide written documentation which outlines key information in regards to credit arrangements under the contract and copies of relevant documents. We cannot provide a list of these documents in this article but are able to guide you the documents that you should receive before signing the guarantee.

  • Understanding of the Documents

You must read and understand every document that the creditor is required to provide to you – yes we know that there can be a lot of documents and that they can be in small print. If you are confused in any way then seek our advice immediately – do not take the debtor’s or creditor’s word about any terms.

In particular:

  • What is the amount of the guarantee, can it be increased
  • Under what circumstances do you become liable under the guarantee
  • What documents will you receive during the guarantee
  • When does the guarantee end

2 – Would You Provide Credit To the Debtor

In my past life as a banker I used to ask a potential guarantor whether they would be happy to incur the liability directly with the creditor and then provide credit directly to the debtor.

You should ask yourself whether you know enough about the debtor and their financial position with signing a guarantee.

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If the answer to the above questions is a resounding NO!!! then providing the guarantee is unlikely to be in your best interests.

3- Effect of You Being Required to Meet Your Obligations Under Your Guarantee

Ask yourself – can I afford to repay the amount that you are guaranteeing if called upon to do so?

If doing so would mean selling or having repossessed any significant assets, having to borrow funds or any significant financial hardship then providing the guarantee is unlikely to be in your best interests.

4 – Are you Prepared to Monitor and Act if the Debtor Starts To Miss Payments?

Guarantees for loan facilities generally require the creditor to send copies of recovery documents sent to the debtor when they fail to make payments.

You should therefore ensure that you are prepared to review such documentation and take appropriate action.

Final Comment

I was once warned by a family member – “marry in haste and repent at leisure” – thankfully I have no cause to repent but maybe this saying can be amended slightly to cover guarantees to

Sign a guarantee in haste – suffer the consequences at leisure

Don’t forget that the legal team at Aylward Game is always there to ensure that you understand the commitment into which you are entering when faced with a request to be a guarantor.

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Learn more about our notary public services with James Noble Family Law.

Contact
United Service Club
Level 4, 183 Wickham Terrace, Brisbane QLD 4001

Free: 1800 217 217
Phone: 07 3236 0001
Fax: 07 3236 0005
Email: mail@aylwardgame.com.au

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