Guaranty Agreement

Guaranty Agreements come with all levels of conditions and restrictions. An absolute Guaranty Agreement doesn’t have any conditions for the creditor. If a Guaranty Agreement does not record any restrictions, it defaults to being absolute. By contrast, a conditional Guaranty Agreement means that in the event of a default, there exist other conditions.

The guarantor can be a corporation or an individual. And by extension, the former would get involved in a Corporate Guaranty Agreement and the latter a Personal Guaranty Agreement.

A promissory note is essentially a type of loan agreement. It can also be a financial instrument used as documented proof of money owed. More formal than IOUs, promissory notes can involve a collateral asset, which is called a secured promissory note. In contrast, an unsecured promissory note is one that is not secured by collateral or anything.

A limited guaranty is a Guaranty Agreement where the guarantor is only guaranteeing a loan up to a specific amount. In this instance, the contract or agreement must clearly state the amount guaranteed, if it is not the same as the amount of the loan. This type of guaranty is most commonly seen in mortgage agreements, though not exclusively.

If the borrower defaults on the loan, the creditor has a right to ask for the total owed immediately from the guarantor if and only if there is an acceleration clause in the Guaranty Agreement, in which case the guarantor would be on the hook for the full amount owed at the lender's request.