Guarantee refers to a formal assurance or promise given by one party to fulfill the obligations or debts of another if that party fails to do so. It acts as a form of financial protection, ensuring that commitments are met even in cases of default or non-performance.

In finance and business, a guarantee is commonly used in loan agreements, credit facilities, and contractual transactions. For example, when a borrower takes a loan, a third party ó known as the guarantor ó may agree to repay the debt if the borrower defaults. This reduces the lenderís risk and improves the borrowerís credibility.

There are different types of guarantees, including:

• Personal Guarantee: An individual promises to repay a businessís debt if the business fails to do so.
• Bank Guarantee: A bank assures payment on behalf of a client if the client fails to meet contractual obligations.
• Performance Guarantee: Ensures that a contractor or supplier will complete work as per the agreed terms.

Guarantees play a crucial role in building trust and facilitating trade, credit, and investments by reducing perceived risk. However, guarantors assume a significant responsibility ó if the primary party defaults, they are legally