Loan Guarantees and Indemnities

A loan guarantee is used where a lender wants additional security for a loan, by requiring a third party to stand behind the borrower’s repayment and related obligations. It can be a practical way to reduce lender risk without taking asset-based security.

This collection includes a range of loan guarantee templates, from personal and limited guarantees through to unlimited and “all monies” guarantees, plus supporting letters and approval templates. It does not include guarantees of payment for goods or services or guarantees of performance of service or works contracts; those are covered in the Commercial Agreements area in the Business section.

These templates are drafted by experienced solicitors and written in plain English for UK use.

When Should You Use These Loan Guarantee and Indemnity Templates?

✅ A lender has asked for a guarantee as a condition of making a loan or continuing finance
✅ You need to limit the guarantor’s maximum exposure to a specific cap (limited guarantee)
✅ The lender requires the guarantor to have unlimited exposure (unlimited guarantee) or to cover all sums owed (all monies guarantee)
✅ You need a demand letter to call on a guarantee following default under the loan
✅ You want a comfort letter (binding or non-binding) rather than a formal guarantee
✅ A company needs board or shareholder paperwork to approve giving a guarantee

Who Are The Parties and What Does A Guarantee Do?

A guarantee is a legally binding document where the guarantor agrees to assume liability for the loan repayment and other obligations of the borrower under a separate agreement.
The parties to the underlying loan agreement are the lender and the borrower. The parties to the guarantee are the guarantor and the lender.

Guarantee or Guarantee and Indemnity?

In practice, documents described as a “guarantee” often include both a guarantee and an indemnity. A guarantee and indemnity generally offers more protection to the lender than a simple guarantee.

All of the Simply-Docs guarantees in this collection, with the exception of the Personal Guarantee Agreement, contain both a guarantee and an indemnity.

Choosing The Right Guarantee Template

This collection includes a checklist to help you choose the most suitable guarantee for the transaction.

Limited Guarantee Agreements limit the maximum amount for which the guarantor may be liable.
The short limited form is best suited to guaranteeing smaller loans and provides less protection.
The long limited form includes more extensive provisions and is suited to larger transactions. 

Unlimited liability options are available where required, including an Unlimited Guarantee Agreement - Short Form and an All Monies Guarantee and Indemnity.

❗Important Points to Watch

• Do not confuse the guarantee with the loan. The borrower and lender are parties to the loan. The guarantor and lender are parties to the guarantee.
• Most “guarantees” are actually guarantee and indemnity documents. In this collection, that applies to all templates except the Personal Guarantee Agreement.
• Short form versus long form matters. The short limited form provides less protection and is best suited to smaller loans.

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