There are 3 different ways to guarantee a loan taken by a company:
1. Guarantee by one person
2. Guarantee by two or more persons
3. Guarantee by a limited liability company
Guarantee by one person:
It is only in the case of a sole proprietorship business that an individual can provide guarantee for a company. Although the law does not recognize/provide any distinction between a sole proprietorship business and the owner, most banks still require personal guarantee of the prime mover of a sole proprietorship business to be provide before a loan is disbursed to the company.
Such guarantee is always accompanied with notarized statement of net worth of the prime mover. The essence of the statement is to be sure that the prime movers is worth more than the value of the loan and that the bank is adequately covered in the event of default of the primary obligor which in this case is the company/business. the statement is notorized in other to give legal backing to it.
Most banks will required the guarantee for both secured and unsecured loans except for cash backed facilities and the guarantee is the final fall back option for the bank in the event of default.
Guarantee by 2 or more persons:
This type of quarantine is provided by a limited liability company as a final fall back option for the bank in the event of default of the primary obligor which in this case is the company. The directors of the company are expected to provide the guarantee.
Most banks will require all the directors listed in the Corporate Affairs Commission’s company registration documents to sign as guarantor for the facility while some will exempt shareholder with less than 5% share holdings. The directors are also expected to provide notorized statement of net worth as guarantors of the facility.
Most bank will require the guarantee for both secured and unsecured facilities and the guarantee remains the final fall back options for banks in the event of default of the primary obligor and the security/collateral for the facility is not easily realizable.
Guarantee by a limited liability company:
This form of guarantee is provided by a company to:
a) Secure facility for another company
b) Secure facility for its employees.
A company providing guarantee for another company is assuring the lender that if the primary obligor fails to fulfill its loan obligations, it is willing to take over the responsibility. The company provides its audited statement and its cash flow to the bank to prove its ability to accommodate the facility in the event of default. .
Most short tenured facilities like Auto Loan; Personal Loan Against Salary, Asset Acquisition Loans and mortgages granted by banks to staff of companies comes with the corporate guarantee of the company. The company’s guarantee often time is limited to their commitment to continue to domicile the salary of the staff to the bank that granted the facility until the facility is liquidated and to pay their employees terminal benefits to the bank if the employee resigns or quit his or her job before the facility is fully liquidated.
This however may not be applicable to companies that are not well structured that the bank has granted loan facilities to its staff. Corporate guarantee of such companies goes beyond salary domiciliation and terminal benefits. Such company will have to provide/liquidate the facility if the terminal benefit of its staff is not enough to pay off the facility.
It is important to note however that although guarantees are seen as the final fall back option for bank facilities. The bank reserve the right to call in the guarantees if it is seen as a quick way out of the delinquent loan facility.