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www.ConnectLoan.com A financial guarantee is a legal document that serves as a binding agreement between the borrower, the bank or funder and a third party to ensure a financial obligation is met by some date. A guarantee is usually signed by a guarantor that will serve as a financial backer for a loan. Guarantors are usually obtained for a home loan, vehicle loan or business loan. The extra security gives the bank assurance that the loan will be paid and not default.

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Surety Bond
An irrevocable, non-cancellable surety bond will ensure that the payment will be delivered on a specified date. If the borrower defaults on the loan and cannot meet his or her financial obligations, then the guarantor will assume the responsibility per the instructions in the guarantee.
Tips:
Before signing the a guarantee, make sure that the borrower has a reliable, consistent source of income in which he or she can repay the loan.
For business loans, ensure you see the business' financial statements and get the opinion of an accountant.
A guarantor needs to have their own financial situation verified to make certain that they would be able to take responsibility for the debt of the borrower when they are unable to make repayments. To find out exactly the amount a guarantor will be liable for, the details can be discussed with the lender of the loan.
Lastly, obtain a detailed copy of the loan contract so that you have a record of the agreement. If a loan has no end date, such as a line-of-credit loan, never sign it unless you want to be tied to a loan that will never be paid off.
Deciding to become a guarantor is an important decision so make sure you know all the facts before signing on the dotted line.
How does a Surety Bond Work?
The surety bond just ensures that the loan will be repaid with interest, if applicable, by the borrower or others. A financial guarantee may be used in conjunction with international treaties. Investors may use a financial guarantee to purchase land, raise capital for a company or construction or development.
The contract is only binding if it is in writing and signed by all involved parties. The right of subrogation allows the surety to assume the responsibility of the principal borrower in the event the primary borrower cannot meet his or her obligations.
Legal Obligations of a Guarantee
In the United States, the person who signs a surety agreement is deemed an accommodation party. This person is legally bound to the issuer of the guarantee. These funds must be paid regardless of the business's or borrower's ability to generate funds to pay for the loan.

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Advantages of Financial Guarantees
Financial guarantees allow borrowers to obtain access to property and other items that they may not currently have the assets to cover. A guarantor will allow these individuals to afford more than they could alone. With the guarantee, there is no dilution of ownership unless the borrower cannot meet their obligations.
Financial guarantees can help borrowers obtain mortgages, vehicles, an apartment or a student loan. In the case of a student loan, the government will act as the guarantor for repayment of the loan. The government will be responsible for the payment of the loan if the student defaults on the loan. The government will also attempt to collect the debt from the student.
Siblings, parents or business partners may act as a co-signer or a guarantor. In each instance, a guarantee will be signed indicating the borrower's financial obligation. Because the guarantee may affect the guarantor's credit if the financial obligations are not met, the guarantor must be assured that the person is trustworthy.
If the guarantor has enough assets to cover the loan, the loan may be issued for 100% of the value of the home or vehicle. This is a rare instance. In most cases, a guarantee will require at least 25% of the total value of the loan, but this amount differs depending on the bank where the loan originates.