43+ Sample Guarantee Agreements

What is a Guarantee Agreement?

A Guarantee Agreement is an agreement through which someone else “guarantees” loans or debts of an individual. In other words, when a person takes out the loan or debt defaults or does not pay, the guarantor party agrees to pay the amount being owed. The Guarantee Agreement is signed by just one party only which is the Guarantor but the agreement is concluded between the three parties: the creditor, which extends the credit, the debtor who owes money and the guarantor, who agrees to pay the amount if the debtor fails to. This type of agreement is most commonly used in loans for college tuition where the government would agree to be the guarantor. The parties involved in this situation are the creditor which is the bank who provides the money for tuition, the guarantor which is the government, and the debtor which is the student. If the time comes and the student fails to pay the loan, the government will pay the loan for the student as a guarantor.

Types of Guarantee

Guarantee agreements aim to protect the lender from debts and loans being unpaid or unresolved. Here are the different types of guarantee agreements that differ according to how they’re used.

Absolute Guarantee: There are no limitations for an absolute guarantee which limit a creditor to immediately move to take relief, when the party who committed to the initial agreement defaults in the contract. A guarantee is immediately considered absolute without the conditions.Conditional Guarantee: If the parties conclude an agreement with a conditional guarantee, the duty of the guarantor to pay the debt takes more than a default. In the event that the borrower fails to pay, the guarantee pays an amount due by the borrower. The guarantor is thus only liable to pay when the borrower violates its commitment. It calls on the creditor to act in some ways.Unilateral Contract of Commercial Credit: This is a form of guarantee contract commonly encountered in commercial transactions. It frequently occurs between a wholesale merchant and a retail trader. It also occurs between a retail trader and a consumer. The items are supplied against no money but with an agreement under this form of guarantee contract. The parties’ agreement is either written or oral. The agreement may or may not include any security against payment discharge at a later date.Bank Guarantee: A bank guarantee is a financial backup that a lending institution offers. The guarantee from the bank indicates that the lender guarantees that the debtor’s liabilities are satisfied. This means the bank will cover the debtor if the debtor does not settle the loan. The client or debtor can purchase products, purchase equipment or purchase a loan through a bank guarantee.Payment Guarantee: A letter of credit is a tool that one person writes to the other concerning credit. The person who writes a letter urges the other person to offer credit or support to the bearer of the letter. This approach is often observed in international trade. This may be a broad credit letter against general traders or a customized credit letter which draws all the information included against a single individual.Collection Guarantee: A collection guarantee is a guarantee of a specified percentage of the amount of loan principal remaining outstanding after the Lender has fully complied with the collection procedures and ninety days interest at the same percentage. It stays valid until the Parties are actively revoking it as a kind of assurance used in recurrent transactions.Retrospective guarantee: When the debt is already outstanding, a retrospective guarantee is a guarantee issued. The word “outstanding debt” refers to the entire amount of money a company owes its creditors, including interest on them. This indicator is one of the key measures for lenders, investors and management. Companies, like individuals, have credit ratings. The guarantee should be called a retrospective guarantee when it comes to an existing obligation or debt.Prospective guarantee: A prospective guarantee is given in terms of a future debt or obligation. Meaning, the debt or obligation has not yet taken place but is going to happen in the future. This legal document is used for cases like this.Specific guarantee: When the debt is repaid or the promise is performed, a specific guarantee is said to be discharged. This type of guarantee is given for one transaction debt only. This guarantee is extended only to a single debt and is also called a simple guarantee.Continuing guarantee: A Continuing warranty is a guarantee that the guarantor is not accountable for unless there is a certain occurrence of a specified event. This guarantee concerns the guarantee’s future obligation for consecutive transactions which continue to be borne by the guarantor or which, once satisfied, is referred to as continuing guarantee. The guarantor is responsible for the guarantee.Personal guarantee: The personal guarantee refers to a legal commitment of an individual to pay back the loan given to a company for which he or she is a manager or partner. Providing a personal guarantee implies that the person takes personal responsibility for the amount if the enterprise cannot repay the loan. Personal guarantees enable credit providers that wish to ensure they are refunded with an additional degree of safety.Performance guarantee: Performance Guarantees guarantee the contractual employer to achieve their intended deadlines and to finish their commitments. In order for the contractor to ensure that the contract data fully and appropriately complete the works by the contractor, a performance guarantee is given by an insurance company or bank to a contractor on behalf of the contractor.Validity guarantee: A validity  guarantee is a particular type of guarantee when making loans based on assets. This type of assurance is utilized when numerous people or a company operate a small firm. The assurance of validity is signed by the owner or authorized representative who works daily with the firm.Warranties: the type of guarantee that a manufacturer makes regarding the condition of its product, this could also be used by a similar party as a manufacturer. It also refers to the conditions and scenarios under which repairs or exchanges are carried out if the product is not working according to the description or planned. Warranties typically carry warranty-restrictive restrictions.Letter of Credit: A letter from a bank to another bank that generally serves as a guarantee of payments made to a certain individual, under specific conditions, to another country or to a foreign nation.Bid bond: A bid bond is used as part of the offering procedure when the contractor will provide a binding bond to the project owner, to ensure that the recipient is given the contract under the terms and conditions under which the bidder is granted.

How to make a Guarantee Agreement?

This article provides different samples of the different types of guarantee agreement templates. Whether you’re looking for a  guarantee agreement for loan, guarantee agreement for payment or just basic guarantee deed or agreement, there are downloadable templates for you. If you want to make your own, you can follow these steps.

Step 1: Title

The name for the document, which is the Guarantee Agreement, should be at the top of the page, ideally in the middle. To emphasize the title, the font must be bigger than the rest. This is so that the readers know what the document is all about. 

Step 2: Introductory Paragraph

Introduce the agreement in a brief paragraph to inform the reader about the upcoming paragraphs. The effective date and the length of the agreement may be included. This can also contain the names of the firms involved and the primary addresses of the parties, you only have to determine the guarantee agreement format you’d like.

Step 3: Introduction of the parties involved

Depending on your formatting, the names of the parties could be included in the introductory paragraph or be in a separate short paragraph. Here you introduce the names of  the creditor, the debtor and the guarantor. The creditor or a lender is the one that lets the other party borrow money like a large financial organization such as a bank. Debtors, be they banks, or other persons, are individuals or companies which owe money. Debtors are often referred to as borrowers when the funds are owed to a financial institution or a bank. Guarantors are individuals who pledge to repay the debt if the debtor or borrower fails to do so.

Step 3: Body of the Agreement

In this part, there are several clauses you must include but that depends on what your needs are, as a lender. This part is very complex and it should be. Here, you enumerate all the important details you want to happen. This includes clauses that describes that the guarantor guarantees to provide sufficient funds to assure the payment of covered service contract claims, and all other liabilities, guarantor guarantees the payment of covered service contract benefits and any extensions, modifications or innovations thereof, the guarantee is continuous and not cancellable without certain days notice to the health maintenance organization and the written approval of the court. It also includes a clause that states any modification of the agreement is subject to the prior approval of the court. Just make sure that the clauses included are designed to protect the lender.

Step 4: Section completed by the guarantor

Naturally, the parties involved should submit signatures, like any other legal documents or contracts, to ensure that they have read, understood and approved all the conditions contained in the contract and to maintain the terms of the agreement. In this agreement the guarantor is the only party that is required to sign. Other authorized people can sign too but the most needed sign is that of the guarantor’s because this entire agreement is for the guarantor.


Who are the involved parties to a guarantee agreement?

Different types of guarantees are used depending on their purpose but there are usually 3 main parties involved in a guarantee. These are the creditor, the debtor and the guarantor. The creditor or a lender is the one that lets the other party borrow money like a large financial organization such as a bank. Debtors, be they banks, or other persons, are individuals or companies which owe money. Debtors are often referred to as borrowers when the funds are owed to a financial institution or a bank. Guarantors are individuals who pledge to repay the debt if the debtor or borrower fails to do so.

What happens if the guarantor cannot pay the loan?

If the guarantor is unable to repay, the lender will investigate why the guarantor is unable to do so and will find a reasonable solution to this situation. However it is usually improbable that the guarantor will not be able to pay for the loan, unless the conditions significantly alter, because guarantors to qualify, they have to have sufficient property to answer for the obligation which he guarantees.

When is a product guarantee agreement needed?

Most customers find guarantee agreements on their way while buying a product or recruiting someone to carry out a service. It might be extremely easy or rather difficult to enforce, depending on the degree of the promise. Companies can fix durations on product warranties that restrict the ability of the buyer to reimburse a goods.

What is the role of a guarantor in a mortgage?

In case the participating party does not live up to its agreement, this involves the consent of a third party called a Guarantor that provides guarantee of payment. The bank will, for instance, seek a guarantor to make good on the mortgage contract when a homeowner fails to pay the mortgage.

A clear and well written guarantee agreement, no matter how long it is, shows clearly what the parties, may it be an individual or a corporation, of what is expected to do and what their positions are. A guarantee agreement, like any other legal contract, helps the parties to work better together and binds them legally of their obligations. Make sure everyone understands what is written in it and act upon it. In short, make sure that the signed agreement is a quality guarantee agreement that ensures the lender’s protection.