Loan Quarantee

A loan guarantee is a promise by a government to assume a private debt obligation if the borrower defaults. Most loan guarantee programs are established to correct perceived market failures by which small borrowers, regardless of creditworthiness, lack access to the credit resources available to large borrowers.

There are three types of loan guarantees:

1. A specific guarantee holds a guarantor responsible for a particular asset for a certain value


2. A continuing guarantee can cover a line of credit, the outstanding balance of which will fluctuate


3. An all accounts guarantee covers all debt and is commonly used by professional loan companies

A private loan guarantee often comes with a higher rate of interest. A responsible entrepreneur will ensure their guarantor reads all documentation regarding their responsibility to back up the loan. But financial institutions might be more willing to provide a loan backed by a guarantor of means, so this form of financing can be the ideal way to kick-start profitability.