A partial loan guarantee does not give a business money. It gives the lender cover for part of the loss if the business defaults, which changes a decline into an approval without lowering the lender’s risk appetite. For small businesses without security, this mechanism explains more approvals than any funding announcement does.
Guarantee funds operating across African markets provide these partial guarantees to banks alongside capacity development, and are capitalised by public institutions while being run on commercial terms.
The guarantee addresses the security problem, not the viability problem
Most small business loan declines come down to insufficient security rather than a bad business. A guarantee substitutes for the property or assets the borrower does not have. It does not compensate for weak records, unclear cash flow or an unconvincing repayment case, which the lender still assesses in full.
Ask your bank whether a guarantee applies to you
Guarantees are arranged between the fund and the lender, so a borrower does not apply for one directly. The practical step is asking your business banker whether any guarantee facility covers your sector, size or profile, because many borrowers are never told the option exists.
Local currency guarantees remove a specific risk
A guarantee denominated in the borrower’s own currency means a currency movement does not change what the lender recovers, which is why it encourages local lending rather than only foreign-currency lending. For the borrower it means the facility can be in rands, avoiding the currency exposure that has damaged many African businesses borrowing in dollars.
Capacity development is attached for a reason
These funds pair guarantees with support for the lender and often the borrower, because a guarantee that simply covers losses would produce more losses. The support is intended to make the lending work rather than to make the failure affordable, which is the difference between a guarantee scheme and an insurance policy.
A credit rating on the guarantor is what makes it usable
A bank will only rely on a guarantee if the guarantor is demonstrably able to pay, which is why these funds pursue ratings from international agencies. A strong rating lowers what the guarantee costs and widens the number of banks willing to use it, and the local lending it enables shows up in the credit data published by the South African Reserve Bank.
Frequently asked questions
What is a partial loan guarantee?
Cover provided to a lender for part of the loss if a borrower defaults, which allows approval of loans that would otherwise be declined for lack of security.
Does a guarantee mean a business gets funding automatically?
No. It addresses insufficient security only. Records, cash flow and the repayment case are still assessed in full by the lender.
How does a business access one?
Not directly. Guarantees are arranged between the fund and the lender, so the step is asking your business banker whether a facility covers your profile.
Why does local currency matter?
A guarantee in the borrower’s own currency avoids the exchange rate exposure that has damaged businesses borrowing in foreign currency.
Why do guarantee funds seek credit ratings?
Because a bank will only rely on a guarantee from an entity demonstrably able to pay, and a strong rating lowers the cost and widens the number of participating lenders.
Further reading
Originally published in December 2017. Updated September 2026 to explain how loan guarantee schemes work for a borrower rather than reporting a credit rating.
