Question & Answer
What is a Guarantor Deal, and How Can I Leverage It for Equity?
Cash is king. But sometimes, the smartest move isn’t deploying cash—it’s leveraging what you already have. That’s where a guarantor deal comes into play.
Instead of investing hard-earned capital upfront, you provide a guarantee. In essence, you back a loan, a lease, or a financial obligation with your balance sheet rather than cash. If structured correctly, this can be a strategic way to gain equity without direct capital expenditure.
How a Guarantor Deal Works
Imagine a founder needing capital but struggling with financing. The company has strong potential, but lenders are hesitant without a track record. That’s where you, the investor, step in—not with cash, but with a guarantee.
By pledging your financial strength, the company can secure funding. In return, you negotiate equity or another form of compensation. You haven’t written a cheque, yet you’ve acquired ownership. That’s leverage at its finest.
Guarantor deals are particularly useful in situations like:
- Helping a company secure a bank loan or credit facility
- Backing a commercial lease for expansion
- Facilitating vendor agreements with extended payment terms
- Providing collateral support for larger transactions
Structuring the Deal to Your Advantage
Not all guarantees are created equal. The key is structuring the terms in a way that minimises your downside while maximising upside potential.
First, limit the guarantee scope. Avoid blanket personal guarantees that expose you to unnecessary risk. Instead, negotiate caps, expiration dates, or conditions that release your guarantee once the company hits milestones.
Next, demand equity or convertible rights in return. If you’re putting your balance sheet on the line, you should be compensated. Structuring a guarantee in exchange for common or preferred shares ensures your risk has a potential upside.
Use a step-in clause. If the company defaults and you’re forced to step in, negotiate the right to take control, restructure, or claim additional equity. The last thing you want is to cover the debt with no path to recoup your risk.
Finally, align incentives. If founders know your guarantee is on the line, they’re more likely to operate responsibly. Structuring vesting schedules, clawbacks, or performance-based release mechanisms keeps everyone accountable.
Why This Works for Investors
In Deal Structuring, I outline multiple ways investors can put their financial position to work beyond simply writing cheques. A guarantor deal is a prime example of how wealth isn’t just about cash—it’s about leverage.
If you have significant equity or strong financials, leveraging guarantees can be a high-reward strategy. You conserve liquidity, take a calculated risk, and, if structured properly, gain ownership without deploying capital.
Of course, like any financial commitment, guarantees carry risk. But for investors who know how to structure them correctly, they represent a unique tool—one that allows you to acquire equity with little to no upfront investment.
Use it wisely, and you might find yourself owning more, risking less, and structuring deals that work in your favour.
Deal Structuring
Buy the book today and dive into practical techniques that empower you to get started immediately, navigating transactions efficiently and maximizing your success in minimizing cash requirements.
In this book, you will:
- Be introduced to the fundamentals of deal structuring
- Learn 19 proven deal models for structuring deals
- Discover 39 key elements of deal nuances
- Access 32 actionable clauses for your term sheets
- Explore 9 specific deal structures
- Receive 257 pages of invaluable insights
- Gain the distilled expertise of 20 years