What are Multiple Guarantors?
The phrase “multiple guarantors” is used by financial institutions when describing a loan that is guaranteed by more than one entity. A guarantor could be an individual, LLC, corporation, or another type of entity.
Challenges of Multiple Guarantors
Loans involving multiple guarantors can be operationally challenging for financial institutions to administer due to:
- Relationship Complexity
Efficiently managing multiple guarantor relationships (and understanding how they’re all connected) requires careful recordkeeping, especially for financial institutions with large commercial lending portfolios. Situations involving subsidiaries and related entities can make it especially difficult to gain a complete view of cash flow.
- Tracking Complexity
Increased document tracking is to be expected when multiple guarantors are involved. In addition to monitoring the principal borrower’s creditworthiness, banks and credit unions regularly request financial statements and other documentation from additional guarantors. Identifying missing documents, generating and distributing notice letters, and following up with customers or members takes time and effort.
Multiple Guarantors Example
To better illustrate these challenges, let’s imagine that an entrepreneur named Tony needs a loan for renovating his restaurant. Tony owns five other restaurants, each of which are organized as separate LLCs. He plans to list each LLC as a guarantor on the loan, in addition to providing a personal guarantee. To further complicate matters, two of the restaurants involve a co-owner—who recently retired and now lives in a different state.
Simply understanding the nuances of such complex business relationships could require numerous conversations and considerable amounts of documentation. Efficiently tracking everything on an ongoing basis could prove to be even more challenging.
Managing Multiple Guarantors
Traditionally, financial institutions relied on paper-based filing systems to organize and track commercial loans—including those that involve multiple guarantors. Paper loan files make it difficult to gain a holistic view of each relationship. Pulling hard copy files from a central location is time-consuming and, in some cases, not possible if a file is already checked out to another team member. Tracking correspondence and missing documents in spreadsheets or checklists poses numerous risks for errors and oversights.
Software like AccuAccount can alleviate many difficulties that are commonly associated with multiple guarantors. AccuAccount provides an intuitive way to view and link together entity relationships as well as streamlining exception tracking and reporting.
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