Loan Guarantee
A loan guarantee is a promise from a lender to cover the debt of a borrower in the event that the borrower defaults on the loan. This type of guarantee is often used to secure a loan for a business or individual who may not have the creditworthiness to qualify for a loan on their own. The lender will require the borrower to provide collateral, such as property or other assets, to secure the loan guarantee.
History of Loan Guarantees
The concept of loan guarantees has been around for centuries. In the United States, the federal government has provided loan guarantees since the Great Depression. The Federal Housing Administration (FHA) was established in 1934 to provide loan guarantees to lenders who were willing to make loans to individuals who could not otherwise qualify for a loan. Since then, the federal government has provided loan guarantees for a variety of purposes, including student loans, small business loans, and agricultural loans.
Comparison of Loan Guarantees
| Type of Loan | Collateral Required | Interest Rate |
|---|---|---|
| Student Loan | None | Fixed |
| Small Business Loan | Property or Assets | Variable |
| Agricultural Loan | Property or Assets | Fixed |
Summary
A loan guarantee is a promise from a lender to cover the debt of a borrower in the event that the borrower defaults on the loan. This type of guarantee is often used to secure a loan for a business or individual who may not have the creditworthiness to qualify for a loan on their own. The lender will require the borrower to provide collateral, such as property or other assets, to secure the loan guarantee. For more information about loan guarantees, you can visit the websites of the Federal Housing Administration, the Small Business Administration, and the U.S. Department of Agriculture.
See Also
- Creditworthiness
- Collateral
- Interest Rate
- Default
- Secured Loan
- Unsecured Loan
- Mortgage
- Liability
- Insurance
- Debt Consolidation
