Cross Corporate Guarantee

What Is A Cross Corporate Guarantee?

A cross corporate guarantee refers to guaranteeing one corporation or entity with the assets of another corporation or entity.

Cross Corporate Guarantee Explained

A cross corporate guarantee is a way for a business to use another business’s assets as collateral. A credit card processor might ask a company to use this type of guarantee to mitigate certain risks.

Credit card processors complete an underwriting process when they approve a merchant account. As part of this process, they require a person or entity to act as a guarantor on the account.

In most cases, the owner of the business or another person will act as a personal guarantor. If the owner closes their account unexpectedly or otherwise reneges on their contract, the guarantor promises to pay the debt.

A personal guarantee means that the guarantor will use their individual assets to repay what the business owes.

A personal guarantor can mean a merchant’s account is approved when it would otherwise be declined.

Personal guarantees are very common when it comes to merchant accounts. Cross corporate guarantees are less common, but they are another option that can help a business access merchant services.

With a cross corporate guarantee, instead of a person acting as a guarantor, another business or corporation steps in.

Cross Corporate Guarantee Examples

Bill is the owner of an office supply company called Bill’s Paper Goods. Bill has been in business for about six months. So far, he has taken payments via cash, checks, and PayPal. Now, he’s ready to begin accepting credit cards.

Bill’s brother Charles owns a business that specializes in landscaping. Charles’s business is called LawnWorks. Charles refers Bill to his credit card processor and recommends them. He says their pricing is reasonable, and they have great customer service.

When Bill applies for an account, the processor is hesitant because Bill has been in business for a short time. Also, his personal credit is slightly below average.

They advise that they will approve the account if Bill can find someone to act as an additional personal guarantor on the account. Bill asks Charles for help.

Charles offers to set up a cross corporate guarantee. He says they can use his business, LawnWorks, as the guarantor for Bill’s merchant account.

The credit card processor agrees to this arrangement. Charles and Bill both sign the merchant agreement. Charles provides his company’s business license, contact information, and banking details, along with his personal contact information. Charles isn’t acting as a personal guarantor, but he wants to make things easy for the processor if they need to reach him.

If there is an issue with Bill’s account, the processor will pursue LawnWorks’s assets to recoup any losses.

For example, Bill might be unable to pay his monthly statement fees. He might receive an unexpectedly high number of cardholder disputes and not be able to pay for them. Or, his business might close.

In any of these situations, if Bill can’t pay what he owes based on his contract, Charles and LawnWorks will be responsible.

Ideally, Bill’s business and his merchant account will run smoothly. He’ll never have to rely on his agreement with his brother’s company. But because of the guarantee, he can access merchant processing services.