We continue our series on loans/investments with Robynne Erwn of Finfind, this is Podcast 3 in the series. You can find the previous podcasts by searching for Robynne in the search bar or type Finfind.
One of the ways lenders can lessen the risk of lending money is to insist that business owners or individuals borrow money and provide surety for the loan. Surety is a third party who promises to pay the money back even if the business or individual goes into bankruptcy; it is a guarantee. The common terminology used by the financial sector is to say that someone “stands surety” for the loan.
Types of Surety:
All the lender wants to know is that they are guaranteed not to lose the money (and interest) that they lend you. You have a few options to choose from in order to provide surety for the loan:
- Sign personal surety (where you are fully responsible for repayment of the loan and interest and the lender can attach and sell any of your personal assets in order to recoup their money).
- Find a relative or friend to sign surety against your loan (where the friend or relative becomes personally liable to repay your debt (loan, interest and admin charges) in the event you default.
- Raise sufficient collateral so that you don’t need to sign surety.
This document is going to discuss the extremely broad powers that the lender has over your assets if you sign personal surety.
This strange word means that the lender must first try to get their money back from the principle debtor (that is, the business or person who signed the loanagreement) before they can turn to you to honour the debt. So essentially, the lender must attach and sell the business assets before they can attach and sell your personal assets.
However, a standard personal surety contract will generally have a clause in it that says: If your business fails to repay the loan, the lender can get the money back from you and furthermore, the lender can do this is in whatever way is easiest for them. In other words, the lender doesn’t have to first try to recover the money from your business assets, they can go directly to your personal assets. That means that they can take away your house first if that is the easiest way to recover their money! In legal terms, you sign away the rights to the “benefits of excussion”.
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