Loan surety - can the money be recovered?

Service Business

The decision to take out a loan can often be very difficult for an entrepreneur and is preceded by many considerations over the "pros and cons" of such a solution. After selecting it, you still have to meet a number of criteria required by the bank, including a loan guarantee. What is it and how to protect yourself from the risks it brings?

What is a loan guarantee?

Under civil law, a surety is an agreement that includes the obligation of the surety towards the creditor to pay the debtor's debts, in the event that the debtor has failed to do so.

The surety is to secure the payment of someone else's financial debt. By having such a document, the potential borrower shows that even if he fails to pay his debt, there is a person who will do it for him. The surety is responsible for the creditor with all his assets. Such an obligation exists as long as the borrower does not pay the debt.

The necessity of repayment and its conditions

As mentioned above, the surety undertakes to pay the debtor's receivables if he fails to do so. If such a situation already occurs - the borrower will stop paying off his loan for some reason and the bank will not be able to take his property - the bank will contact the guarantor, whom it will treat as the debtor from that moment on. However, when writing a contract with the person taking the loan, you can construct it so that the burden that falls on the guarantor is slightly smaller. To this end, the contract concluded at the very beginning should include the stipulation that in the event of delays in loan repayment, the creditor will first try to contact the debtor, and if this does not help, he will turn to the guarantor. As a result, if the debt is repaid even to a small extent, the amount that may have to be paid by the resident will decrease.


When signing a surety agreement, points should be entered into for:

  • immediate notification of the ryrant about the debtor's failure to pay the debt. Thanks to this, the guarantor will be able to immediately settle the debt, thus avoiding the payment of penalty interest, which is charged in the event of late repayment of loan installments;
  • the responsibility of the guarantor for the amount required to be repaid by the debtor. It is best to stipulate that the resident is liable only for the appropriate amount of the borrower's receivable. As a result, neither the payment of penalty interest nor possible costs of debt collection proceedings will apply to him.

A good solution when a surety is required is to oblige more than one person to it. Then the bank, in the event of default by the debtor, turns to one of these beneficiaries. However, it is impossible to predict or determine who will be asked to pay first. Most likely, a surety will be selected whose property allows for the fastest payment of the debt.

Can I get my money back?

If there is a situation in which the guarantor has to pay the borrower's debt, he may apply for the recovery of his money. This type of treatment is called a recourse claim. However, you must pay the debtor's debt before claiming the amount paid.

Writing a surety agreement with a friend or family member can help the entrepreneur obtain the loan he needs. If we decide to act as a giver in this agreement, we must remember about the obligations that may be imposed on us, as well as the rights that we are entitled to.