What it means
A guarantee is a contractual promise by a third party (the guarantor) to answer for the debt or default of another person. If the main debtor does not pay or perform, the creditor can pursue the guarantor instead. A guarantee generally must be in writing and signed to be enforceable. Because guarantors can become personally liable for large sums, courts and lenders apply safeguards, and a guarantee may be set aside where it was obtained by unconscionable conduct, undue influence, or without genuine understanding.
How it's used
Before approving the small-business loan, the bank required the owner's father to sign as guarantor for the repayments.