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Guarantee: Definition, Example and Related Terms

What is a Guarantee ?

A guarantee is a promise made by a person or an organization (the guarantor) to take responsibility for someone else's debt or obligation if that person fails to meet their obligation. In other words, if something doesn't work out as planned, the guarantor will step in and make it right. This promise provides a safety net and reassurance to the other party (the beneficiary) involved in a contract. It's like having a backup plan to ensure that things will be taken care of, even if things go wrong.

In the world of business and commerce, guarantees are often included in contracts to ensure that goods or services being sold meet certain standards or that the terms of a contract are met. For example, a manufacturer might guarantee that a product will work as advertised for a certain period of time. If the product fails during this time, the manufacturer promises to repair or replace it at no cost to the customer.

Guarantees are important in business because they provide assurance and peace of mind to the parties involved. They also create trust between the parties, which is essential for successful business relationships. However, it's important to understand that a guarantee is a legally binding obligation. If the guarantor fails to meet their guarantee, they may face legal consequences.

In addition to product and service guarantees, there are also financial guarantees. These are promises made by a bank or other financial institution to cover a borrower's debt if they fail to repay it. For example, if a business takes out a loan and fails to repay it, the bank that issued the guarantee will have to cover the debt.


  • Scenario Description
    A company is selling a new model of a coffee machine. The company guarantees that the coffee machine will work perfectly for at least one year from the date of purchase. In this case, the company is providing a product guarantee. They're promising to the customer that the coffee machine will work without any problems for at least one year. If the coffee machine breaks down within that time, the company promises to fix or replace it, free of charge.
    A software development company is contracted to build a new website for a client. The contract includes a guarantee that the website will be completed by a specified date. In this case, the guarantee is in the form of a service guarantee. The software development company is making a promise to their client that the website will be ready by a certain date. If they fail to meet this deadline, they might have to provide a refund or other compensation, as specified in the contract.

Related terms