The purpose of the guaranty has both legal and psychological sides. As a lender, it provides you with assurances while protecting the borrower’s commitment through their guaranty. Even better, a personal guaranty holds the borrower’s assets on this loan and the guarantor as an assurance.
Psychologically, the guarantor knows he is responsible for any default by the borrower. Therefore, both the borrower and guarantor would be responsible for the loan repayment. As a lender, personal guaranties provide an alternative source for your loan to be repaid. This is especially the case when guarantors have other income streams that can be included when underwriting additional income if the loan policies and procedures allow this. It can also be a tool for negotiation. If a borrower defaults, you can always pressurize the guarantor to get the borrower to fulfill their debt.
If something goes wrong with the borrower’s property, you can analyze the guarantor’s assets and go after them. Most people do not know the importance of personal guaranty. However, it is worth more than mere writing. It can get your loan repaid, re-performing, or modified to fit your wants as a lender. A borrower could get you all the help you need if your plan didn’t go as planned.
If you need to explore personal guaranties in your existing loans or new loan deal, click here to find out more.
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