Signing surety is something that most business owners are used to and mostly see as part and parcel of being in business.  But when does the surety have an effect on your personal position. When must you worry about the suretyship and when not. 

Firstly, what does it mean to sign (or stand) as surety for someone or for your company?  Simply put, it means that if the person for whom you signed the surety, does not pay their debt, you will be obliged to make sure that the debt gets repaid, by paying it yourself.  Simple example:  Your daughter wants to go and study and she takes out at student loan.  Mom or Dad will be required to sign surety, that if daughter does not pay back the bank after her studies, mom and dad will make sure the debt is repaid to the bank.

Legally you will be sued with the person who did not pay back their debt and you will also be listed on the credit bureau as a bad payer.  Thus, beware of sureties and who you sign for

Most people think that once you signed surety, you immediately owe the money.  This is not true, for as long as the person that you signed surety for repays the debt, there is nothing for you to do. However, the risk remains until this debt has been paid by the other person. If they default years down the line, you will have to repay the loan to that bank.

But what will happen if you have signed surety for your business and you then close down the business, without repaying the outstanding debt? 

The reason that banks have the directors sign surety for debt, is exactly this.  If the business close down, the bank will have the individual sureties from you are the director, which they will call upon for you to pay back to the debt in your personal capacity.

Before signing surety, what information must you confirm and have in writing:

1. Obtain a copy of the main agreement between the bank and the person for whom you are signing surety.Remember you are committing to repay if this agreement is not honored, and therefor you need to familiarize yourself with the contents of this document as well as the surety document.
2. A suretyship agreement must at least contain the following:
   1. The identity of the creditor;
   2. The identity of the surety and the capacity within which the surety is signing;
   3. The identity of the principal debtor;
   4. The nature and amount of the principal debt must be determinable by reference to the provisions of the written document.
3. Make sure you understand the document and what you are committing too.
4. Only sign surety, for the limited amount that the debtor is taking.Unlimited surety, will mean that you will also stand in for possible debt that they make in the future.