If someone you love has asked you to guarantee their loan, or you’re a director being asked to personally back your company’s finance, chances are your bank has already told you: before the loan can go ahead, you’ll need independent legal advice.
It can feel like a formality, one more form to sign before you get on with your day. It isn’t. It’s one of the most important documents in the whole transaction, and it’s there to protect you.
What is a guarantor?
A guarantor is someone who agrees to be personally responsible for another person’s or entity’s debt if they can’t repay it. The most common examples we see are:
- Parents guaranteeing a child’s home loan, often using the equity in the family home to help them get into the property market sooner, or avoid lenders mortgage insurance.
- Directors and shareholders guaranteeing a business loan, because a company is a separate legal entity, banks usually want a real person standing behind the debt before they’ll lend to it.
- SMSF members guaranteeing their fund’s property loan. SMSFs can only borrow to buy property through a Limited Recourse Borrowing Arrangement (LRBA), which by design limits the lender’s recourse to the property itself if the loan defaults. Because that recourse is so limited, lenders typically require the fund’s members to personally guarantee the loan as well, giving the bank a way to recover the shortfall beyond just the asset. Note: since 10 August 2026, SMSFs can no longer enter into new LRBAs to buy residential property. This borrowing structure is now only available for commercial property. Existing residential LRBAs already in place are grandfathered and can continue.
In every one of these situations, if the borrower defaults, the bank can come after the guarantor for some or all of the debt, potentially including their home.
Why do banks require independent legal advice?
This isn’t the bank being cautious for your sake alone. It’s protecting the loan itself.
Australian courts have made it clear that a guarantee can be set aside if the guarantor didn’t properly understand what they were signing, or was pressured into it by the borrower (a parent talked into it by an adult child, for example). This is often referred to as the Garcia principle, after a well-known High Court case on the subject. If that happens, the bank can be left with a guarantee that isn’t worth the paper it’s written on, sometimes years after the money has already gone out the door.
So lenders now build independent legal advice into the process as standard. An independent solicitor sits down with the guarantor and explains exactly what they’re agreeing to, and then signs a Certificate of Independent Legal Advice. That certificate tells the bank that this person understood the risk, wasn’t pressured, and made an informed decision. Some lenders also require a matching Certificate of Independent Financial Advice from an accountant or financial adviser.
What does that advice actually cover?
A proper guarantor advice session isn’t a rubber stamp. We walk you through:
- Exactly what you’re guaranteeing, and for how much
- What happens if the borrower misses payments or defaults
- Whether your liability is limited or unlimited, and what assets are at risk
- How the guarantee interacts with any mortgage or security you’re providing
- What your options are if you want to be released from the guarantee later
- Any questions you have, in your own words, at your own pace
Only once we’re satisfied you genuinely understand the arrangement do we issue the certificate.
What we offer
At Legali, our guarantor advice service is built to be fast, clear, supportive, and genuinely useful, not just a box-ticking exercise. We provide:
- A consultation with an experienced solicitor, (in person at our Paddington office or via video call)
- Plain-English explanations, no legal jargon
- Review of the loan and guarantee documents your bank or broker has sent through
- A signed Certificate of Independent Legal Advice provided directly to your bank or broker
- Fixed, transparent pricing
- Booked appointment within 1 business day from receiving the documents.
We know these appointments are usually needed quickly, often to keep a settlement on track, so we prioritise getting guarantors seen without the wait.
Lastly, If you’ve been asked to be a guarantor: Take the advice seriously, even if it feels like a formality. It’s your one opportunity to ask hard questions before you’re legally on the hook for someone else’s debt. Bring your loan documents, come with your questions, and don’t sign anything until you’re genuinely comfortable.
Get in touch
If your bank, broker, or lawyer has asked you to arrange independent legal advice as a guarantor, contact Legali on 1300 967 925 or at info@legalilaw.com.au and we’ll get you booked in.