Guaranty of Payment: Where the Bank is entitled to recover from the guarantor without first seeking to recover from the borrower. This is the most common (and, from the perspective of the Bank, the best) form of guaranty. To be of this type, the guaranty should contain appropriate language making it clear that it is “a guaranty of payment and not of collectability.”
Guaranty of Collection: Where the Bank may not recover from the guarantor until the Bank has sought (unsuccessfully) to collect from the borrower. In such cases, the guaranty amounts to a remedy of last resort. Guaranties are construed in favor of the guarantor against the Bank. Accordingly, in the absence of language to the contrary, a guaranty will be treated as a guaranty of collection. If a guaranty of collection is intended, the guaranty should contain language giving the Bank the right, in its sole discretion, to determine if and when it has exhausted its remedies with respect to the borrower and the borrower’s collateral.