There are two main categories of guarantees to distinguish.
Real guarantees (sûretés réelles) grant a creditor a real right (droit réel) over an asset, allowing them in certain cases to liquidate it in order to recover their claim. Real guarantees can cover movable property (pledges, liens) or immovable property (mortgages) and can be structured with or without repossession.
Personal guarantees (sûretés personnelles) enable a creditor to seek payment from a third party's assets. The primary example is the personal guarantee (cautionnement), where a guarantor promises to pay the principal debtor's debt. When a guarantee is joint, several, and indivisible (solidaire et indivisible), any guarantor can be called upon for the full amount of the debt without the creditor having to wait for the principal debtor to become insolvent. Just as with guarantees in general, joint liability is never presumed and must be explicitly specified in the contract.
By principle, a guarantee is accessory (accessoire), meaning it is transferred along with the principal debt and terminates once the underlying debt is extinguished. However, bank credit agreements often stipulate that a guarantee covers a range of existing or future credit lines. While this offers greater flexibility, it can also lead to oversights. As a result, it is not uncommon for a business owner to be surprised to discover that a guarantee was granted by the company long ago—perhaps even by a predecessor. When in doubt, it is wise to request a comprehensive statement of all active credits and guarantees from the bank.
This review becomes particularly relevant when an outgoing owner is preparing to sell their business. They should carefully compile a detailed inventory (amount, duration, land registry details, etc.) of all granted guarantees. If they have provided a personal guarantee, they should request a formal release from the bank wherever possible. If the bank refuses, the seller must ensure that the buyer assumes this obligation and that the bank formally accepts the substitution.
For the buyer, the objective is to assess the company's borrowing capacity by auditing its assets to determine which ones remain available to secure current or future financing. A personal guarantee will frequently be requested by lenders to secure share acquisition loans, as company shares hold limited collateral value on their own.
Although banks generally do not extend loans purely "on collateral," guarantees play a pivotal role in their credit approval processes. The Basel III framework, which came into effect in January 2013, requires banks to maintain higher risk coverage to withstand potential financial crises.
To remain prudent, banks apply conservative haircuts when valuing collateral, as forced sales or insolvencies inevitably cause asset values to drop—or reveal that pledged assets are no longer present. Consequently, the lending value of collateral is typically reduced to a fraction of its appraised value, often surprising borrowers who become aware of it.
Although rarely discussed, guarantees represent an essential cog in the economic engine. In developing economies, for example, a functioning land registry system is one of the single most crucial tools for establishing a secure environment conducive to business growth. Whether locally or globally, guarantees are a necessary evil that must be managed with care to support ongoing expansion and strategic projects.
Illustration: Clou
