If the loan is to be guaranteed, a Bank should obtain information on the guarantor’s financial condition, income, liquidity, cash flow, contingent liabilities, and other relevant factors to evaluate the guarantor’s financial capacity to fulfill the obligation if the borrower defaults on the loan.
If a guarantor is a natural person, inquiry should be made as to whether the guarantor has a spouse. If so, legal counsel should be consulted since the spouse may have a community property interest in the assets of the guarantor.
The Bank also should investigate the number and amount of the guarantees currently extended by a guarantor to determine whether the guarantor has the financial capacity to satisfy all existing contingent claims. The Bank should determine whether the guarantor previously has voluntarily honored a guarantee, as well as the marketability of any assets supporting the guarantee.
Since some guarantees are limited (e.g., cover interest only, or step-down in amount over the development, construction, and lease-up phases of the project), the Bank should closely monitor the project for satisfactory completion and stable operations before issuing a release to the guarantor.