Who the Code means by a guarantor
business.gov.au lists working out “who will guarantee your loan if you need a guarantor” among the things to settle before applying for a business loan. The Banking Code defines a Guarantor as an individual who gives a guarantee or indemnity to secure a loan to another individual or to a small business that its Part B6 covers.
The Code then names several kinds of guarantor, because some of its protections do not reach all of them:
- Director Guarantor
- A guarantor who is a director of the company that is to be the borrower.
- Sole Director Guarantor
- The same, where the company has only one director.
- Commercial Asset Financing Guarantor
- A director, shareholder or manager of a company who guarantees the company’s asset finance.
- Trustee and Partnership Guarantors
- The Code also sets these apart; its Part E gives the detail.
Before the guarantee is signed
Read as a checklist, these are the subscribing bank’s commitments, with who is left out of each:
| The commitment | Paragraph | Does not apply to |
|---|---|---|
| The guarantee is capped: at a stated amount or category of amounts, or at the value of named property under a named security when the bank recovers. | 102 | No exception listed |
| The terms carry a prominent notice: get advice, you can refuse, there are financial risks, you can limit your liability, you can ask about the loan, and the guarantee may cover future credit. A warning sits directly above the signature. | 103 | No exception listed |
| The guarantor is told of any notice of demand made on the borrower in the past two years, and whether an existing loan will be cancelled without the guarantee. | 104 | Commercial Asset Financing, Sole Director, Trustee and Partnership Guarantors |
| The guarantor gets the papers: the proposed loan contract, a list of related securities, any credit report, credit-related insurance the bank holds, financial statements given in the past two years, a recent statement where a demand was made, and other information reasonably asked for, though not the bank’s internal opinions. | 105 | Commercial Asset Financing, Sole Director, Trustee and Partnership Guarantors |
| Those papers go to the guarantor or their representative directly, never through the borrower. | 107 | Commercial Asset Financing, Sole Director, Trustee and Partnership Guarantors |
| A Director Guarantor (not a sole director) is told of the right to those papers and may choose not to receive some of them, without the bank influencing the choice. | 108 | Applies only to Director Guarantors |
| The bank takes reasonable steps to hold a meeting with the guarantor, in person or by video, phone or other means, with the borrower not present. | 109–111 | Where legal advice is confirmed, to an extension, and to Director, Sole Director, Commercial Asset Financing, Trustee, Partnership and Vehicle Asset Financing Guarantors |
| The bank does not accept the guarantee until the third day after the guarantor received the notice, the information and the papers. | 112–113 | Where legal advice is confirmed, to an extension, to several kinds of guarantor, and to a Director Guarantor who chooses to sign sooner |
| If the bank attends the signing, the guarantor signs without the borrower there. | 114 | Commercial Asset Financing, Sole Director, Trustee and Partnership Guarantors |
Paragraph 106 adds one more, for a loan regulated under the National Consumer Credit Protection Act: the guarantor may ask for a free copy of the bank’s assessment that the loan is not unsuitable.
While the guarantee runs
- Notices within 14 days. The bank sends the guarantor a copy of any formal demand or default notice it sends the borrower, a notice if the borrower’s financial difficulty has led to a change in the loan, and a notice if a default has continued for more than two months after the default notice (paragraph 115). This does not apply to Commercial Asset Financing, Sole Director, Trustee or Partnership Guarantors.
- Asking to lower the limit. A guarantor may write to the bank to limit what they guarantee. The bank can refuse if the new limit would not cover what the borrower already owes with interest and costs, or if it is bound to lend more, or must lend more to protect the value of the security (paragraph 116).
- New lending under the same guarantee. A new loan, or a change to the existing one, may fall inside the guarantee up to its limit (paragraph 119). Raising the limit itself needs the guarantor’s written acceptance, after the paperwork in paragraph 105 is given again (paragraph 120).
Ways out
The Code names two. Withdrawing: by written notice, at any time before the bank first lends under the loan, or afterwards if the loan as signed differs in a material way from the proposed loan the guarantor was shown. A new loan or change that falls within the guarantee’s limit under paragraph 119 is not such a difference (paragraph 122). Ending it: by paying the lower of what the borrower owes, including future or contingent amounts, and the guarantee’s limit, or by another arrangement the bank agrees to (paragraph 123).
If the bank enforces
- The borrower’s security comes first. The bank will not enforce security the guarantor gave, such as a mortgage over their home, until it has enforced the security the borrower gave. Before enforcing over the guarantor’s principal place of residence, it encourages the guarantor to explain their circumstances so other ways to repay can be discussed (paragraph 124). This does not apply where the guaranteed debt arises under a standard margin loan.
- A judgment against the guarantor waits too. The bank will not enforce a judgment against the guarantor unless the borrower’s security has been enforced and one more thing has happened: a judgment against the borrower has gone unpaid for at least 30 days after written demand, the borrower cannot be found after reasonable attempts, or the borrower is insolvent (paragraph 125).
- The exceptions. Those limits fall away if, after the default notice and after being told of them, the guarantor agrees in writing that they do not apply, or where the bank reasonably expects the borrower’s security to fall well short (paragraph 126).
When a guarantor has a complaint
ASIC’s guide to its oversight of AFCA names “an individual consumer or guarantor” among the people eligible to complain to AFCA. AFCA’s Rules of 12 March 2026 allow a complaint that arises from giving a guarantee or security for finance a firm provided to an Eligible Person (rule B.2.1(b)). The steps of a complaint are in roll 06.