Contingent Liabilities
What does it mean
Contingent Liabilities represents the combined total of debt obligations that the individual has guaranteed of other individuals/entities. In the event of a loan to a small business where the owner personally guarantees the loan, that loan would represent a contingent liability of the owner because he is liable for the debt IF the business is unable to meet its obligations.
Why does it matter
Understanding Contingent Liabilities is important because the value of a guarantor is directly related to how much debt that individual guarantees. If you had a loan of $1,000,000 with a guarantor with a personal net worth of $10,000,000, you’d feel pretty good, right? Well, that depends on how much other debt that person guarantees. If that personal has no other contingent liabilities, you should feel good, but if you find out that person guarantees $50,000,000 of loans, you feel less good about the value of the personal guarantee. Understanding a guarantor’s contingent liabilities is essential to understanding how valuable that guarantee will ultimately be.
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Greetings! I'm Clay Sharkey, and there is nothing I like more than assisting others in achieving their goals. I firmly believe that by enhancing a banker's understanding of their customer's' business, they can provide superior service. This superior service, in turn, leads to stronger relationships for the bank, improved performance for the businesses, and better experiences for our communities. Win-win-win.
