Loan guarantee
A loan guarantee gives a lender a contractual claim against a guarantor when covered borrower obligations are not met. It can improve access to finance or change lending terms, but coverage, eligibility, fees, claim conditions and the guarantor's creditworthiness matter. A government guarantee scheme does not normally cancel the borrower's obligation to repay the loan. The lender may still bear uncovered loss and the borrower may face recovery action under the applicable agreement and law.
Worked example
A business borrows $100,000 under a scheme that guarantees 80% of an eligible loss to the lender, subject to its rules. The guarantee may reduce the lender's exposure, but the borrower remains responsible for its debt under the loan agreement.
Common mistake
Treating a government guarantee as a grant to the borrower or assuming the guarantee covers all losses and circumstances without checking the agreement.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AFM | Supporting | September 2026–June 2027 |
| ACCA | FM | Supporting | September 2026–June 2027 |