Your landlord has called on your bank guarantee: what happens now, and how to fund it

When your landlord calls on your bank guarantee, the bank pays the landlord and then recovers the money from you, usually from the deposit that backs the guarantee. Many leases then require you to restore the guarantee in full. That can mean two bills at once. An emergency business loan can fund the gap while you sort out the cause, or any dispute.

A bank guarantee usually sits in a drawer for years, half forgotten. You put up three or six months’ rent at the start of the lease, the bank issued the guarantee, and life went on. Then one day a letter arrives: the landlord has called on it. Maybe it’s rent arrears. Maybe it’s a disputed make-good bill, outgoings reconciliation or damage claim. Either way, the money has gone, and the lease may say you have a short window to put it back.

This guide explains how a called guarantee works in practice and how an emergency business loan can help you keep the premises.

How does a bank guarantee actually work?

A bank guarantee is your bank’s promise to pay the landlord up to a set amount if the landlord makes a valid demand. In most small business cases, the bank protects itself by holding your cash, commonly in a term deposit, as security for the guarantee.

When the landlord calls on it:

1. The landlord sends a demand to the bank, in the form set out in the guarantee.
2. The bank pays the landlord, usually without deciding whether the landlord’s underlying claim is fair.
3. The bank recovers the amount from you, often by using the deposit it holds, or by debiting your account if there’s no cash security.
4. The guarantee is reduced or ends, depending on whether the whole amount was called.
5. Your lease may require a replacement guarantee, restored to the full amount within a set time.

It’s that final step that creates the cash crunch. Your deposit has gone to the landlord, and now you need to find the same amount again to back a new guarantee.

What does the cash crunch look like?

The size of the problem depends on why the guarantee was called. Here’s how typical scenarios play out:

Why the landlord called it	What you’ve lost	What you may still need to fund
Rent arrears	Deposit used to clear arrears	A new guarantee, plus keeping current rent paid
Disputed outgoings or make-good claim	Deposit paid to landlord while dispute continues	A new guarantee; legal costs if you contest
Damage or repairs claim	Deposit used for repairs	A new guarantee; possibly your own repair costs
Partial call	Part of the deposit	Topping the guarantee back to full
End of lease, moving out	Deposit used for make-good	Possibly a new guarantee for the next premises

If the call was for arrears, the underlying cash-flow problem still needs fixing too. A new guarantee without a plan for ongoing rent just postpones the next letter. If you’re facing both at once, an enquiry takes about a minute and a real person can look at the whole picture.

What should you do in the first few days?

1. Read the lease and the guarantee. Find out when the landlord can call, whether you must replace it, and how long you have.
2. Ask the landlord, in writing, for the basis of the claim and a breakdown of the amount.
3. Talk to your bank about what’s been paid, what it’s recovering from you and how to arrange a new guarantee.
4. Get advice if you dispute the claim. Retail lease disputes often have a state-based dispute pathway. The Australian Small Business and Family Enterprise Ombudsman’s dispute support page lists options for business disputes, including retail leases.
5. Work out the total you need: the replacement guarantee, any arrears still owing and enough to keep rent current.
6. Keep paying current rent if you can. Falling further behind weakens your position in any dispute.

Which funding fits?

Replacing the guarantee. This is a one-off amount, often several months’ rent. A short-term or working capital facility can provide the cash your bank needs to issue a new guarantee. Unsecured and cash-flow options typically run from $5k to $500k, sized on turnover and bank statements. See our working capital loans page.

Arrears plus a new guarantee. If both are needed, the total can climb quickly. Short-term business loans are a common route when the business is trading steadily and the arrears came from a one-off event.

A larger amount, or recent trading has dipped. If you own property, a property-secured facility, from $20k to $5m, can carry the cost even when turnover has softened. For a quick, short-term need, caveat loans are often used.

Who borrows matters too. If your lease is in a company’s name, the company is usually the borrower. As business.gov.au points out, a company is a legal entity separate from you, so make sure the loan, the lease and the guarantee all sit with the same entity.

Illustrative example: a boutique retailer after a slow winter

This is an illustrative example, not a real client. A homewares boutique in a strip shopping centre fell two months behind on rent during a slow winter. Its lease is backed by a $30k bank guarantee, secured by a term deposit. The landlord calls on $20k of it to clear the arrears and gives the business 14 days, under the lease, to restore the guarantee to the full $30k.

Trading has picked up with spring, but the owner can’t find $20k in two weeks while also paying current rent and building stock for Christmas. Twelve months of bank statements show steady sales outside the winter dip. A short-term facility provides the $20k to restore the guarantee, plus a small buffer. The owner also moves to weekly rent transfers from a dedicated account so arrears can’t quietly build up again. Our retail shop loan page covers how lenders look at retailers.

What will a lender want to see?

A called guarantee is easy to explain if you have the paperwork together. Expect to be asked for:

• The lease, or at least the clauses covering the bank guarantee and the replacement obligation.
• The landlord’s demand or notice, showing the amount called and the reason given.
• Your bank’s confirmation of what it paid and what it has recovered from you.
• Twelve months of business bank statements, so the lender can see how the business trades outside the problem period.
• A short explanation of what caused the arrears or claim and what has changed since.
• Your ATO position, because lenders always check for tax debt.

Lenders tend to be comfortable when the cause is clear and temporary: a slow season, a one-off dispute, a customer who paid late. What worries them is a business that has been sliding for months with no plan. Showing that current rent is being paid, and that the new guarantee is the last piece of the puzzle, makes a big difference.

How do you stop it happening again?

• Treat rent like tax. Put it aside weekly in a separate account so the monthly payment is never a scramble.
• Talk to your landlord early if a slow month is coming. Most would rather agree a short arrangement than draw on a guarantee.
• Diarise lease events: outgoings reconciliations, rent reviews and the end-of-lease make-good.
• Keep a cash buffer or line of credit for the quiet months, so arrears don’t build up in the first place.

If the rent problem is a symptom of something bigger, the free Small Business Debt Helpline on 1800 413 828 can help check viability and negotiate with creditors, including landlords.

Guarantee called? Let’s keep you in your premises

Losing a shop or workshop over a guarantee you can’t replace in time would be a harsh outcome for a business that’s otherwise trading. A quick, well-sized facility is often all that’s needed to restore the guarantee and get back to business.

It takes about 60 seconds to enquire, and there’s no credit check at that first step. Your details aren’t broadcast to a pile of lenders, so you won’t spend the next week dodging unknown numbers. A real person reads your situation, lease and all, and calls you to talk it through. Please complete the form accurately, including the guarantee amount and any arrears, so we can match you with the right option first time.

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