When a creditor asks for a “guarantee” in Turkey, many businesses sign quickly—especially in urgent deals (leases, supply contracts, loans). But guarantees can create serious, long-term exposure, particularly for founders and foreign directors who don’t realize what they are committing to. The type of guarantee, who signs it, and how it is drafted can determine whether you have real security (as a creditor) or unexpected personal liability (as a guarantor).
This guide explains guarantees in Turkey in a practical way: corporate vs personal guarantees, key legal risks, and the clauses that make guarantees enforceable and commercially fair.
1) What Is a Guarantee in Practice?
A guarantee is a commitment by a third party (guarantor) to pay or perform if the main debtor fails. In business practice, guarantees are used to:
- secure payment of invoices,
- support lease obligations,
- secure bank facilities,
- back performance obligations.
Key point: A guarantee is not “just a formality.” It shifts risk to the guarantor—sometimes very aggressively.
2) Corporate Guarantee vs Personal Guarantee: The Real Difference
A) Corporate Guarantee
A company (often a parent or group entity) guarantees the debtor’s obligation.
Pros (for creditor)
- deeper pockets if group is strong,
- corporate enforcement may be easier if the guarantor has assets and banking activity.
Risks (for creditor)
- guarantor may be thinly capitalized,
- corporate authority/signature disputes if not signed properly.
Risks (for guarantor)
- the group becomes exposed to a subsidiary’s operational debts,
- guarantees can block future financing or trigger group-wide risk.
B) Personal Guarantee
An individual (often a founder, director, or shareholder) guarantees the obligation.
Pros (for creditor)
- powerful leverage (personal exposure encourages payment),
- valuable when the debtor company is small or new.
Risks (for creditor)
- enforceability depends on clean formalities and evidence,
- guarantor may later dispute consent or scope.
Risks (for guarantor)
- personal assets become exposed,
- guarantee may survive even if the business relationship ends,
- risk escalates if the guarantee is “unlimited.”
3) Who Can Sign a Corporate Guarantee in Turkey?
A corporate guarantee must be signed by a person with proper authority to bind the guarantor company.
Practical best practices:
- verify signatory authority before signing,
- require corporate approvals where needed,
- ensure the guarantee matches the signing authority rules (single vs joint signature),
- keep the authority evidence in the contract file.
A guarantee is only as strong as the authority behind it.
4) The Biggest Guarantee Risks (Both Sides)
Risk #1: “Unlimited” or Vague Scope
If the guarantee does not define:
- what debt is covered,
- maximum amount,
- term/duration,
- which contract(s) and invoices are included,
it can become a dispute magnet—or a dangerous open-ended obligation.
Risk #2: Guarantees That Cover “All Present and Future Debts”
These are common in practice but can be extremely risky for guarantors and can create enforceability fights if the scope is unclear.
Risk #3: Renewal and Extension Traps
Some guarantees extend automatically or cover renewals of the underlying contract. If not controlled, a “one-year deal” becomes a multi-year guarantee exposure.
Risk #4: Hidden Guarantees via “Side Letters”
Guarantees sometimes appear in side emails or short annexes. This creates major evidence and authority disputes later.
5) Best Clauses for a Strong (and Fair) Guarantee
Whether you’re creditor or guarantor, the following clauses create clarity:
A) Cap (Maximum Amount)
Set a clear cap:
- principal amount,
- interest and costs included/excluded,
- currency and FX conversion rule.
B) Defined Term
State:
- start date,
- end date,
- whether it covers renewals,
- survival after termination (if any).
C) Trigger and Notice Procedure
Define:
- what counts as default,
- notice to guarantor,
- cure period (if any),
- when payment becomes due.
D) Waivers and Defenses (Careful)
Creditors often want broad waiver language. Guarantors should ensure waivers are not overly broad or unfair, especially for future unknown obligations.
E) Evidence and Documentation
Require:
- contract references,
- invoice listing method,
- statement-of-account mechanism.
This prevents disputes about what the guarantee covers.
6) Practical Advice for Creditors: How to Make Guarantees Collectable
- verify authority (signature circular / authorization evidence)
- attach underlying contract as schedule
- cap the guarantee but ensure it covers realistic exposure
- include clear default trigger and payment timeline
- consider additional security if exposure is high
A guarantee is only useful if it is enforceable and the guarantor is solvent.
7) Practical Advice for Guarantors: How to Limit Risk Safely
If you are asked to give a guarantee:
- insist on a maximum cap,
- limit to a specific contract and period,
- exclude unknown future debts unless priced and controlled,
- require notice before enforcement,
- avoid covering renewals unless separately approved,
- keep a copy of all documents and authority records.
A controlled guarantee is negotiable. An uncontrolled guarantee can follow you for years.
FAQ
Are personal guarantees common in Turkey?
Yes, especially in leases, supply relationships, and early-stage credit arrangements. Their enforceability depends heavily on documentation and form.
Should foreign founders sign personal guarantees?
Only with caution. If unavoidable, cap and limit the scope and term, and avoid “all future debts” language.
Do corporate guarantees require special approvals?
They often require proper corporate authority and may need internal approvals depending on the company’s governance rules.
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