The process of guarantor removal
Removing a guarantor from a loan agreement, especially within SACCOs and other cooperative financial institutions, is a sensitive and procedural matter. Since a guarantor acts as a security for a loan, any changes to their status must be handled with care to ensure the interests of all parties—especially the lender—are protected. The process often varies slightly depending on the institution’s policy, but several key steps are common across most financial setups. Below is the process of guarantor removal.
Need for Guarantor Removal
Before initiating the removal process, it is important to understand the reason behind the request. In most cases, a borrower may want to remove a guarantor due to a breakdown in personal relationships, improved creditworthiness, or changes in the guarantor’s willingness or capacity to support the loan. On the other hand, a guarantor may also request to be released from their obligations if they face financial difficulties or intend to take out their own loan and need to reduce their exposure.
Whatever the reason, the removal must be justifiable and accompanied by a plan that satisfies the lending institution’s risk management requirements.
Submitting a Formal Request
The first step in the process is for the borrower or the guarantor to submit a formal written request to the SACCO or lender. This letter should clearly state the reason for the guarantor removal and whether a replacement guarantor is available or if alternative security will be provided. In most SACCOs, such requests must be addressed to the loan officer or the credit committee.
The request may also need the consent of both the borrower and the guarantor, especially if the original agreement binds both parties legally.
Assessment by the SACCO or Lender
Once the request is received, the SACCO carries out a risk assessment. This process involves reviewing the borrower’s loan repayment history, current balance, and overall creditworthiness. The institution will also evaluate the capacity of any proposed replacement guarantor or assess the value of alternative security, such as collateral or savings.
If the borrower is found to be in a strong financial position—evidenced by timely repayments and stable income—the SACCO may be more willing to approve the removal.
Providing a Replacement or Alternative Security
In many cases, a SACCO will require the borrower to provide another guarantor to replace the one being removed. The new guarantor must meet the same eligibility criteria as the original one and be approved by the institution.
Alternatively, if the borrower has accumulated sufficient savings, shares, or assets, the SACCO may agree to convert the loan into a secured one and proceed with the removal without needing a replacement guarantor.
Approval and Documentation
If the SACCO approves the request, a formal letter or agreement is prepared to effect the removal of the guarantor. Both the borrower and the outgoing guarantor must sign the necessary documents, and the SACCO’s legal or credit officer must verify and witness the changes.
The SACCO then updates its loan records and removes the guarantor from any legal or financial obligation related to the loan. It’s important to note that until this process is complete, the guarantor remains legally bound to the loan.
Final Notification and Record Update
Once the documentation is finalized, the SACCO will issue a formal communication confirming the removal of the guarantor. This notice is shared with all parties involved and the guarantor’s liability is officially terminated. The institution then updates its internal systems to reflect the new loan security structure.
Author: Andrew Walyaula
Andrew Walyaula is a seasoned multimedia journalist. waliaulaandrew0@gmail.com
