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GLOSSARYTERMS AS A CREDIT DESK USES THEM

Limited guarantee

What is a limited guarantee, and why does the wording of the cap matter?

ONE OF 366 TERMS · FREE · NO SIGNUP

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED

// THE SHORT ANSWER

A limited guarantee caps what the guarantor can be made to pay, at a set amount or a share of the debt, instead of covering everything the borrower owes. The wording of the cap decides how much protection the bank actually has. A cap may or may not carry interest and enforcement costs on top, and a guarantee of the whole debt with a limit on recovery works differently from a guarantee of only part of it: under the second, a guarantor who pays its share can generally claim in the borrower's insolvency for that part, in competition with the bank.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

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