The bank is obtaining several guarantees for a new loan in
Ontario secured on personal property.Do I need to make each of the
guarantors signatories or parties to the commitment letter or loan
As a general rule, it is always a good practice to include
guarantors as signatories on the principal documents evidencing a
Corporate guarantors and other business entities within the
borrower's corporate group should be made parties to the
commitment letter or loan agreement. In most cases these guarantors
will be providing unlimited guarantees and joining in some, if not
all, of the representations, warranties and covenants of the
borrower. Making them parties to the loan agreement will ensure
that they cannot claim they were unaware of the terms of the debt
they are guaranteeing. As parties to the principal loan document,
they will also be parties to any amendment to that document and
will thereby be consenting to the terms of that amendment and the
impact of those amended terms on their guarantees.
For guarantors providing guarantees that are either limited in
amount or limited in recourse to certain assets, these guarantors
must also be made parties if they are joining in some of the
representations, warranties and covenants of the borrower. However,
if they are not joining in those provisions, both the guarantors
and the borrower will probably request that the guarantors not be
included as parties. The guarantors will probably wish to avoid all
the negotiations and circulation of document drafts prior to
signing. In addition, the borrower will likely wish to avoid
involving these guarantors in its affairs until the business deal
has been settled. In these instances however, it will be necessary
to ensure a guarantor's written acknowledgment is obtained to
every post-closing amendment to the commitment letter or loan
For guarantors who are individuals, it is appropriate to have
them be parties to the principal loan document where those
individual guarantors are also officers or directors or
shareholders of the borrower and have a close connection to its
operations. If these individuals do not have that connection, then
once again the borrower will likely wish to avoid making them
parties and to avoid involving them in the transaction until the
business deal with the lender has been settled. Provided all
appropriate certificates of independent legal advice are obtained
at the time of the execution and delivery of the guarantee, and
periodic guarantor's acknowledgments are obtained on amendments
and for the passage of time, those unconnected guarantors need not
be parties to the principal loan document. Indeed, they will likely
be limited guarantors or limited recourse guarantors in any
Overall, including guarantors as signatories on the principal
documents evidencing a loan is a good approach unless client
relationship issues or special circumstances like those described
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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