Finance - The danger of Suretyships
(17 May 2011)


Surety Risk

The Risk of Surety by Warren Wilkinson

Surety - property that your creditor can claim in case you default on your obligation; "bankers are reluctant to lend without good security"

When applying for a home loan with a financial institution, and your income and asset value does not cover the required loan you are applying for, the bank may ask you to get someone to stand as guarantor for your load, meaning that if you do not pay your debt, the surety becomes personally liable to do so .

There are two types of suretyship which will define how much of the debt will be guaranteed by the surety, namely a limited suretyship which has a maximum rand value and an unlimited suretyship which has no maximum rand value. If you are the person signing surety for someone else, make sure that you read the agreement carefully and that you are prepared to pay the debt if this person does not.

A word of caution: Try to avoid signing surety for anyone including family, friends, business partners and definitely not your boyfriend or girlfriend.

If you have signed surety for someone and their financial position changes for the better it is always advisable to ask the bank if they would consider cancelling the suretyship.

In most cases having to sign a surety is unavoidable, but what you can do to limit your liability in terms of any surety is to limit the amount that you sign for and never sign an unlimited surety.

Secondly, meet annually with your bankers to reduce the amount that you have signed for against the outstanding debt still owing. If you intend not using the facility again in the future of course. 

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