Loan Guarantee Agreement Template for Pakistan

The Loan Guarantee Agreement is a crucial financial security instrument in Pakistani banking and commercial practice, used when a third party (guarantor) agrees to secure the debt obligations of a borrower. This document is essential in situations where additional security is required by lenders to mitigate credit risk, particularly common in corporate lending, project finance, and SME financing. The agreement must comply with Pakistani legislation, particularly the Contract Act 1872 and Financial Institutions (Recovery of Finances) Ordinance 2001, which provide the legal framework for guarantee contracts. The document typically includes detailed provisions on the scope of the guarantee, enforcement mechanisms, guarantor's obligations, and remedies available to the lender. It's particularly important in the Pakistani market where lenders often require personal or corporate guarantees as additional security for loans.

1. Parties: Identifies and defines the Lender, Guarantor, and Borrower with their full legal names and addresses

2. Background: Explains the context of the loan agreement between Lender and Borrower, and the Guarantor's agreement to guarantee the obligations

3. Definitions: Defines key terms used throughout the agreement including 'Guaranteed Obligations', 'Event of Default', and 'Guarantee Period'

4. Guarantee: Core section detailing the scope and nature of the guarantee, including the maximum guaranteed amount

5. Guarantor's Representations and Warranties: Statements of fact and assurances given by the Guarantor regarding their capacity and authority to provide the guarantee

6. Nature of Guarantee: Specifies that the guarantee is continuing, irrevocable, and unconditional

7. Enforcement: Describes when and how the guarantee can be enforced by the Lender

8. Payments: Details the mechanism for making payments under the guarantee, including currency and payment method

9. Indemnity: Guarantor's obligation to indemnify the Lender against losses related to the guarantee

10. Costs and Expenses: Allocation of costs related to the preparation and enforcement of the guarantee

11. Notices: Procedure for giving notices under the agreement

12. Governing Law and Jurisdiction: Specifies Pakistani law as governing law and establishes jurisdiction for disputes