Financial matters

Private sector

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Most corporate guarantees are made by parent companies on behalf of subsidiaries or associates. Occasionally a large company may provide such a guarantee for a company that has no direct affiliation, an example might be a small, independent but strategic supplier. If the guarantor is the company’s major customer it is in an excellent position to assess the risks of making such a guarantee. Insurance companies issue surety bonds that can also act as loan guarantees.
Being given such a guarantee does not obviate the need for the usual credit appraisal of the borrower but in respect of the guarantee the bank also needs to take into account two factors in order to determine its value as collateral: enforceability and ability of the guarantor to honor its guarantee.