Kinds of Guarantee
Types of Guarantees
A Guarantee is a legal commitment where one party (the guarantor) promises to fulfill the obligations or debts of another party (the principal debtor) in case of default. Guarantees can be classified based on their nature, scope, and conditions. Below are the key types of guarantees:
1. Specific Guarantee
- A guarantee provided for a single specific transaction or obligation.
- The
guarantor’guarantor's liability ends once the specified transaction is complete or the obligation is fulfilled. - Example: A guarantees the repayment of a ₹50,000 loan for a one-time purchase of goods.
2. Continuing Guarantee
- A guarantee that applies to a series of transactions or obligations.
- The
guarantor’guarantor's liability remains in effect until the guarantee is revoked or the transactions are completed. - Example: A guarantees a credit facility provided by a bank to B for recurring business transactions.
3. Personal Guarantee
- A promise made by an individual (the guarantor) to repay the debt or fulfill the obligations of the principal debtor if they default.
- Example: A business owner personally guarantees a loan taken by their company.
4. Corporate Guarantee
- A guarantee given by a company to secure the obligations or debts of another company (often a subsidiary or affiliate).
- Example: A parent company guarantees the loan taken by its subsidiary company.
5. Bank Guarantee
- A guarantee issued by a bank on behalf of its client to ensure that the client fulfills their obligations.
- If the client defaults, the bank pays the beneficiary the guaranteed amount.
-
Common Uses:
- Construction projects.
- Payment security in international trade.
- Example: A buyer provides a bank guarantee to a seller to ensure payment upon successful delivery of goods.
6. Performance Guarantee
- A guarantee provided to ensure the completion of a project or performance of a contract as per agreed terms.
- If the contractor or service provider fails to perform, the guarantor compensates the beneficiary.
- Example: A construction company provides a performance guarantee to ensure the timely completion of a building project.
7. Financial Guarantee
- A guarantee that ensures the repayment of a loan, bond, or other financial obligation.
- Typically used in loans, securities, or credit arrangements.
- Example: A financial institution guarantees the repayment of a bond issued by a company.
8. Advance Payment Guarantee
- A guarantee issued to secure the advance payment made by a buyer to a seller.
- If the seller fails to deliver the goods or services as agreed, the buyer can claim the advance payment from the guarantor.
-
Example: A buyer pays an advance to a manufacturer for goods, and the
manufacturer’manufacturer's bank provides an advance payment guarantee.
9. Deferred Payment Guarantee
- A guarantee where the guarantor promises to make payments at a future date if the principal debtor fails to do so.
- Common in deferred payment sales or credit purchases.
- Example: A bank issues a deferred payment guarantee for goods purchased under installment terms.
10. Conditional Guarantee
- A guarantee that becomes enforceable only upon the occurrence of certain specified conditions.
- The creditor must meet the conditions before demanding payment.
- Example: A guarantee may be conditional on the principal debtor defaulting after a specified grace period.
11. Unconditional Guarantee
- A guarantee where the
guarantor’guarantor's liability is immediate and does not depend on any conditions. - The creditor can demand payment without proving the principal
debtor’debtor's default. - Example: A business provides an unconditional guarantee to a supplier for payment of goods.
12. Joint Guarantee
- A guarantee where two or more guarantors jointly take responsibility for the principal
debtor’debtor's obligations. - The creditor can hold any one or all guarantors liable for the full amount.
- Example: Two business partners jointly guarantee a loan taken for their business.
13. Several Guarantee
- A guarantee where each guarantor is liable only for their proportionate share of the debt or obligation.
- The creditor can only claim the respective share from each guarantor.
- Example: Three guarantors agree to guarantee a debt of ₹3 lakhs, with each responsible for ₹1 lakh.
14. Limited Guarantee
- A guarantee with a specified cap on liability, either in terms of amount or time.
- Example: A guarantor agrees to be liable for only ₹5 lakhs of a ₹10 lakh debt.
15. Unlimited Guarantee
- A guarantee where the guarantor agrees to cover the entire obligation or debt without any limit.
- Example: A business owner provides an unlimited guarantee for the repayment of all debts owed by their company.
Summary Table
| Type of Guarantee | Description | Example |
|---|---|---|
| Specific Guarantee | For a single transaction or |
Guarantee for a one-time loan |
| Continuing Guarantee | Covers a series of transactions or |
Guarantee for a recurring credit |
| Personal Guarantee | Individual assumes liability for |
A business owner guarantees a company |
| Corporate Guarantee | Company assumes liability for another |
Parent company guarantees a |
| Bank Guarantee | Bank ensures |
Bank guarantees payment for construction |
| Performance Guarantee | Ensures project or contract |
Guarantee for completing a building |
| Financial Guarantee | Ensures repayment of financial |
Guarantee for a corporate bond |
| Advance Payment Guarantee | Secures |
Buyer secures advance paid to a |
| Deferred Payment Guarantee | Ensures future payments on credit |
Deferred payment for goods under installment |
| Conditional Guarantee | Enforceable only upon specific |
Guarantee triggered after a grace period for |
| Unconditional Guarantee | Liability is immediate and |
Guarantee for immediate payment upon |
| Joint Guarantee | Multiple guarantors are jointly |
Business partners guarantee a business |
| Several Guarantee | Each guarantor is liable for their share |
Three guarantors each responsible for a portion of |
| Limited Guarantee | Liability is capped at a specific amount or |
Guarantor is liable for up to ₹5 lakhs |
| Unlimited Guarantee | Guarantor has unlimited |
Guarantor assumes all debts of a |
These types of guarantees are commonly used in business, financial, and legal contexts to secure transactions and manage risks effectively.
Real-World Example: Clapnow
Clapnow is India's preloved marketplace, and the concept of guarantees is central to how the platform builds trust between buyers and sellers.
Here's how guarantee principles apply to Clapnow:
-
Performance Guarantee: Clapnow's Instant Ship feature is essentially a performance guarantee to buyers. The platform promises next-day dispatch—and if the seller fails to deliver on time, the buyer automatically gets 10% back. No claims, no follow-ups. The guarantee is built into the system.
-
Specific Guarantee: Each transaction on Clapnow carries its own specific guarantee—accurate product descriptions, proper measurements, and clearly disclosed flaws. If the product doesn't match what was listed, buyers have recourse.
-
Continuing Guarantee: For sellers who consistently meet Clapnow's standards, the platform acts as a continuing guarantor of their reliability. Verified seller badges signal to buyers that these sellers have a track record of fulfilling their obligations across multiple transactions.
-
Conditional Guarantee: Refund and return policies on Clapnow work like conditional guarantees—they're enforceable only when specific conditions are met (e.g., product significantly different from listing, damage during shipping).
In a market plagued by scams and ghosting sellers, Clapnow uses these guarantee mechanisms to give Gen Z buyers the confidence to shop preloved without fear.
If you're into thrifting or preloved fashion, shop from Clapnow & follow @clap.now on Instagram.