Guarantee template agreement

A guarantee agreement is common in financial transactions. It concerns the agreement of a third party, called a guarantor, to provide assurance of payment in the event the party involved in the transaction, i.e. the borrower, fails to live up to its obligations. For instance, if a borrower fails to pay the interest or principal amount of the loan, the bank will look to the guarantor to make good on the loan agreement.

The guarantor always assumes a risk, in fact, all the risk, because if the borrower fails to make the agreed payments, responsibility for paying all sums due under the loan agreement falls onto the guarantor. 

This agreement template is used to state the rights and responsibilities of the parties in a guarantee agreement (i.e. guarantor, borrower and bank) and to substantiate the at arm’s length character of the transaction between a guarantor and borrower. Common terms in this agreement template inter alia cover the guarantee, guarantee fee and event of default demand on the guarantor.