What Banks Look for in Loan Guarantors in Nigeria

Banks and other lenders may require a guarantor when assessing certain loan applications. The exact requirements vary by institution and loan product, but lenders generally want assurance that the person standing behind the guarantee is identifiable, financially credible and capable of meeting the requirements of the guarantee.

If you have been asked to provide a guarantor, understanding what lenders may look for can help you prepare the right person and documents.

Why Do Banks Require Guarantors?

A guarantor can provide an additional layer of support for a lending arrangement. The guarantee can reduce some of the lender’s perceived risk, depending on the structure of the facility.

However, a guarantor does not automatically make every loan application acceptable.

Valid Identification

A lender needs to establish who the guarantor is. Identification requirements can vary, but the institution may request acceptable identification documents and personal information.

The details should be accurate and consistent across the documents supplied.

Ability to Meet the Requirement

Lenders can assess whether a proposed guarantor meets the financial requirements of the particular facility.

This may involve reviewing employment, income, account information or other evidence depending on the lender’s procedures.

Stable Financial Position

A person who is already experiencing serious financial difficulty may not satisfy a lender’s guarantor requirements.

The lender wants to know that the guarantor has sufficient financial standing for the role.

Employment or Income Evidence

Some lenders may request evidence of employment or income. The exact documents depend on the loan type and the institution.

A guarantor should therefore be prepared to provide genuine documents when required.

Credit History

A lender may consider a guarantor’s credit information where permitted and relevant to the assessment.

A history of serious repayment problems may affect whether a person is accepted as a guarantor.

Existing Financial Obligations

A guarantor who already has significant debts may not meet a particular lender’s requirements.

The purpose is not necessarily to find someone who has never borrowed. Rather, the lender needs to assess the person’s overall financial position.

Relationship With the Borrower

Some loan products can specify who is acceptable as a guarantor or what relationship the guarantor should have with the borrower.

Do not assume that every lender will accept any adult simply because they are willing to sign.

Understanding the Guarantee

A responsible lender should ensure that a guarantor understands the commitment they are making.

Guarantors should read the guarantee documents and ask questions before signing.

Maximum Liability

The guarantor should understand the extent of the commitment. A guarantee document may define the amount or circumstances covered by the guarantee.

Never sign a document without understanding the financial exposure.

Accurate Contact Information

The lender may need reliable contact information for the guarantor. Providing false or outdated information can create problems during the loan process.

Required Documents

Depending on the lender, documents may include identification, proof of address, employment or income evidence and other information requested for verification.

Prepare genuine documents and never alter records to satisfy a lender’s requirements.

What Can Cause a Guarantor to Be Rejected?

• Failure to meet the lender’s eligibility requirements.
• Insufficient financial capacity.
• Unacceptable identification documents.
• Serious unresolved credit problems.
• Incomplete documentation.
• Inability to verify the person’s information.
• Failure to satisfy the requirements of the particular loan product.

Can a Guarantor Have Other Loans?

Having another loan does not automatically mean someone cannot act as a guarantor. The lender may consider the person’s total financial position and whether existing obligations affect their ability to satisfy the requirements.

Should You Choose a Wealthy Guarantor?

Not necessarily. Wealth alone does not guarantee acceptance.

The lender may require specific documentation, credit information, employment status or other conditions. A financially responsible person who meets the actual requirements can be more suitable than someone who simply appears wealthy.

How to Prepare a Guarantor

Before submitting the person to the lender, explain the loan amount, repayment period and guarantee arrangement. Make sure they understand that signing can create responsibilities.

Final Thoughts

What banks look for in a loan guarantor depends on the institution and facility. Common considerations can include identity, financial capacity, documentation, credit history and the person’s ability to satisfy the lender’s guarantor requirements.

The most important rule is simple: nobody should sign a guarantee without understanding what they are agreeing to.