# Guarantor

Canonical URL: https://fundmyequipment.com/learn/glossary/guarantor/
Last modified: 2026-05-29T19:39:17+00:00
Type: efin_glossary

## Summary

Third party providing additional security beyond the primary borrower.

## Content

Guarantor is a person or entity that promises to repay a loan if the primary borrower fails to do so. In equipment financing, guarantors are almost always individual business owners or partners who sign a personal guarantee (PG).
Types of guarantors

Personal guarantor: an individual (usually the business owner) signing a personal guarantee
Corporate guarantor: a parent company or affiliate entity guaranteeing a subsidiary's loan
Co-guarantor: multiple guarantors on the same loan (often joint and several)
Limited guarantor: liability capped at a specific dollar amount or percentage of the loan

Guarantor obligations

Pay the loan if the borrower defaults
Provide financial statements to the lender on request (some loans require annual updates)
Notify the lender of material adverse changes (bankruptcy of another business, judgment, etc.)
Comply with covenant restrictions (some PGs include restrictions on personal asset transfers)

Joint and several liability
When multiple guarantors sign, "joint and several" liability means the lender can pursue any individual guarantor for the full debt. The guarantors then sort out reimbursement among themselves.
Example: 3 partners each sign a PG. Business defaults with $300K owed. Lender can pursue:

Partner A for $300K
Partner B for $300K
Partner C for $300K
Any combination thereof until $300K is recovered

If Partner A pays $300K, they can sue Partners B and C for contribution under partnership/LLC law, but that's a separate civil matter from the lender's claim.

Removing a guarantor
Adding a guarantor to a loan after origination is rare. Removing one is also rare. Common situations:

Departing partner: when an owner exits a business, they often want their PG released. Lender consent required; the lender may want a replacement guarantor or additional collateral
Death or incapacitation: the estate may step into the guarantor role temporarily; long-term resolution often requires loan modification
Refinance: at refinance, the guarantor set can change (some leave, new ones may sign)
Burn-down agreement: some loans have built-in guarantor release after the loan reaches a certain principal threshold or after certain performance milestones


What guarantors should know before signing

Read every clause of the PG document
Understand the scope: is liability absolute (for the full debt regardless) or limited (capped at some amount)?
Understand the duration: is it for this loan only, or "continuing" (covering future loans without re-signing)?
Understand the carve-outs: any acts that increase or decrease liability
Consider asset protection in advance (some assets like 401(k) are protected; others can be pursued)