What is a guarantor?
- By Book Keeping Pros
- Sources checked 15 Oct 2026
Definition
A guarantor is a person who agrees with a lender to repay a loan if the borrower cannot keep up the repayments, and who is legally responsible for that debt. A guarantor differs from security: security is an asset a lender can take when a loan goes unpaid, while a guarantor is a person it can ask to pay.
For the business that borrows, having a guarantor does not change how the loan is recorded. The amount borrowed is a liability in its books, each repayment reduces that balance, and interest is recorded as the lender charges it. The guarantor's promise is made by someone else, so it is not an entry in the borrower's accounts.
For the person or business that gives the promise, nothing is owed unless the borrower fails to pay. That is why a promise of this kind, when a business gives it, is often described as a contingent liability. Whether and how it is shown in that business's accounts is a question for your accountant.
Keeping the signed loan agreement and the guarantor's documents with the loan account details means anyone reading the records later can see who has promised to stand behind each debt, and on what terms.
In Australia
business.gov.au's glossary describes a guarantor as someone who agrees to pay back a loan the borrower cannot keep up with, and who carries legal responsibility for the debt. It treats security, also called collateral, as a separate idea: assets that a lender can claim if a loan goes unpaid.
Its guide to applying for a business loan suggests working out, before you apply, who would act as guarantor if the loan needs one, along with the assets the business could put up as collateral and the largest repayment it can afford.
Common mistakes
- Mixing up a guarantor with security: one is a person who has promised to pay, the other is an asset the lender can take.
- Keeping no record of promises the business has made to cover someone else's loan, so a possible call to pay is invisible in the records.
- Filing the loan agreement without the guarantor's documents, so the terms of the promise cannot be checked later.
Related terms
Related service
Small business bookkeeping
Your books kept current, every month.
Sources
- Key financial terms
business.gov.au, Australian Government. Current at 15 October 2026, released 9 July 2024. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
- Apply for a business loan
business.gov.au, Australian Government. Current at 16 October 2026, released 18 February 2026. Checked 16 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.