Credit guarantee

The credit guarantee is cover that can be purchased against a given fee.

For most businesses applying for a for a loan, there comes a time when they have to think seriously about what kind of collateral they can offer as a guarantee for the loan. 

Although the company is developing and profitable, its sales revenue is increasing year by year, and its employees are increasing, this is not enough for the bank providing the loan. For the for the loan, the bank wants collateral in case things turn out less favorably in the future. The company does not necessarily have sufficient assets to offer as collateral, and this cannot be expected from the owners either. For such companies, a credit guarantee can be the solution.

A credit guarantee is an institutional as a guarantee provided as surety for bank loans, loans and other financial products. Its purpose is to facilitate borrowing and to reduce the risk of loan institutions. 

The essence of a credit guarantee is that the risk of non-payment by the borrower company is assumed by an external party, the guarantee institution. As security for the loan as a guarantee be taken out, the payer undertakes to guarantee callable on first demand the payment obligations related to the for the loan to the bank granting the loan. 

In the event that the debtor cannot pay when it should, the guarantee institution will pay instead of the company. This significantly reduces the risk of the financial institution, since the guarantee institution is considered a good debtor. The bank can be sure that the loan will be repaid even in case of trouble. In addition to the guarantee of a guarantee institution, a successful business can be creditworthy for the bank even with less collateral. 

It is an essential circumstance that the credit guarantee always only ensures a certain proportion of the payment obligations (typically 80 percent). Due to this provision, the company must also provide some collateral in order to take out the loan. In addition, if the guarantee is redeemed, the guarantee institution stands up to the bank, but the undertaking's obligation to stand up also remains. This means that the right to enforce the collateral behind the bank loan is transferred to the guarantee institution, which will enforce the debt it has paid against the debtor.

Guarantee institutions charge a so called guarantee fee for their suretyship.

It is worth thinking about the credit scheme. It is advisable to give priority to those schemes that already come with a loan guarantee, as it is expected that it will be easier to meet the collateral requirements.