A public guarantee is a financial instrument that encourages financial institutions, i.e. commercial banks but also public banks, to offer loans to new companies. Guarantee programs are specially designed to help entrepreneurs obtain bank financing by dealing with the collateral constraint. However, guarantees do not provide cash support or any kind of credit.
The guarantee functions as a promise by the guarantor to the lender that, in the event that the borrower defaults on payment, the guarantor will repay the lender a specified proportion of the foregone principal. In other words, guarantees will be given by a guarantor to pay all or part of the loan in the case of borrower payment default.You can find this fragment in the following contexts: