Definition
A guaranty is a commitment by a third party to repay a loan if the borrowing association fails to do so, providing the lender additional assurance.
Why It Matters Financially
A guaranty can strengthen a loan application and improve terms, though associations more often secure loans through pledged assessments. Understanding when a guaranty is required helps a board evaluate offers.
Example Use Case
A lender’s offer is improved when an association arranges a guaranty as additional security for the loan.
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Related Terms
Credit Enhancement, Collateral, Personal Guarantee, Underwriting, Loan Covenant