Learn about the guarantees that a financing must have

A large number of micro and small businesses have difficulty accessing credit. When the perception of the risk of the legal entity is large, financial institutions can demand guarantees for the release of the money.

The process of obtaining credit requires planning. First of all, credit needs must be identified. Think about it: how much you need, why you need that extra money, what you will invest it in and how you will prove that that investment can generate a return. It only contemplates moving forward after having taken into account all these elements.

Once you have a rough idea of the purpose of the credit, you should choose the financial institution and look for information about the institution and about the lines of credit that best fit your needs. Then you will have to analyze the restriction factors and the guarantees necessary for the credit to be approved. Finally, you must submit your business plan to the institution to make the request for financing.

In order to minimize risks, financial institutions perform a credit analysis. Aspects such as reliability, ability to pay, economic conditions and guarantees are taken into consideration when lending the money.

In some cases, financial institutions require guarantees for the granting of credit. This means that in case of insolvency on the part of the borrower, the bank will be repaid.

Among the types of guarantees are:


In this case, a natural or legal person is responsible for the payment in case the borrower is unable to return the amount of the loan to the financial institution.


Here the company issues promissory notes with guarantee, bills of exchange or credit rights as a guarantee of payment.


The company commits a property to guarantee that it will pay the debt. Although possession of the property is preserved, ownership of it is only acquired again after the total settlement of the debt. In case of insolvency, at the end of the stipulated period the property can be taken by the financial institution.


It works similarly to the mortgage but compromises a movable asset, such as a jewel.


When the company does not get another type of guarantee, it must take out insurance to guarantee the payment of the debt to the bank. In that case, in addition to the debt with the financial institution, the company must bear the value of the insurance.

When a financial institution lends money, it is exposed to the risk of not recovering in a timely manner the borrowed money plus the interest associated with the loan. For this reason there are credit guarantees. These are established by a contract in which the lender provides a payment guarantee in addition to your good faith and your verbal and written commitment to repay your debt. Therefore, a credit guarantee in simpler words, is nothing more than insurance against non-payment.

When credit institutions offer financing to their customers, they are assuming the risk that they end up not paying part (or all) of the amount of the loan, which can mean a significant economic loss, in addition to the consequent legal procedures that would have to be carried out against the client.

In order for these entities to enjoy insurance against the defaults of their customers, there are credit guarantees, that is, mechanisms responsible for eliminating the risk to financial institutions when providing credit. To make them effective, the debtor will provide some additional payment guarantee that supports and / or ensures the repayment of the credit in question (for example, a mortgage, a pledged asset or a bond). We can divide credit guarantees into two large groups: real and personal.

Credit guarantees serve as a safeguard for all those financial or banking entities that grant loans to their customers. As we have just seen, there is a wide variety of guarantees used today, each with its own peculiarities and unique conditions, depending on the situation and the parties involved.

A guarantee, therefore, is normally used to ensure compliance with contractual obligations (e.g. delivery). When the seller and buyer agree on the terms of the contract, the seller may have to define which terms should be secured through a guarantee. If some of the seller’s obligations must be secured, the seller requests a guarantee from his bank, and the latter issues the guarantee in favor of the buyer. In the event that some of the buyer’s obligations need to be insured, the buyer will ask his bank to issue a guarantee in favor of the seller.


  • The likely benefits of using warranties can be summarized as follows:
  • Insured payments,
  • The seller can get advance payments,
  • The buyer/seller may offer credit and/or obtain financing, and
  • Insured compensation in case of breach of any material obligation.