Tips on Loan Guarantors

Loan guarantee by fellow members is preferred mode of loan security in the co-operative movement. This mode of guarantee provides an easy way of acquiring loans security in cooperatives. The following are tips to check before you accept to guarantee a loan:

  • Know the applicants well including his/her full names, staff number, work station, the history of the debtor’s borrowers account with the society
  • Know the loan amount that is being applied and ensure the applicant has written it both
  • in figures and words
  • Try to access the applicants’ ability to repay the loan. Avoid guaranteeing loan to members who have a defaulting history
  • Know the extent of any other securities held
  • Maintain a list of all members that you have guaranteed loans.

The Supervisory Committee have resolved to adapt a procedure whereby whenever a member guarantees a loan he/ she will receive notification via SMS with the following information (Name, staff number {where applicable}, loan type, amount of loan, contact of the member guaranteed and the Society office contact). This information is meant to keep a member in the know on all loan guarantees. It is prudent to note that loan guarantor ship is a long-term commitment and should be given due consideration before signing a loan form.

The terms and conditions of loans are explicitly written on the loan application form. This holds a guarantor as jointly or severally liable in the event that the borrower fails to pay the loan. If the debtor/ borrower fail to pay the loan repayment, the guarantor will be liable to remedy that failure, and that could involve the guarantor in payment to the society all amounts owed by the debtor/ borrower to the society. The society can exercise its rights against the guarantor even if it has not pursued the borrower.

The best way to address this issue is to establish a loans guaranteeing club comprising of individuals known to each other. The club will give an avenue to draw guarantors each time they need a loan. This group should be chosen carefully by looking at the person’s financial management skills, honesty and commitment to the group. This group will ensure that you always get guarantors for your loans and will greatly diminish the chances of paying off defaulted loans.