This morning we are addressing an important aspect of your credit application: guarantees. In some cases, the borrower will need to accompany their credit application with a guarantee. Sometimes, this involves the mandatory signature of their spouse or partner. In certain cases, the guarantees presented by the borrower may prove insufficient, and it would then be necessary to accompany the credit application with additional guarantees. In the realm of guarantees, we will distinguish between real and personal securities. In a second part, we will address the assignment of receivables and finally conclude with suretyship. This trilogy of articles will provide you with a comprehensive and synthetic view of the concept of guarantee in credit matters.
The concept of guarantee
The activity of lending is, of course, not without risks: when the lender cannot repay their debt, the bank could incur a loss. Furthermore, it sometimes happens that a client does not present all the required guarantees for a credit, and it is necessary for a third party to sign alongside them (spouse, cohabitant, parents, guarantors).
The function of guarantees – also called “securities” for the lender is to reduce the financial consequences of the risk of insolvency of a client debtor of a debt. It allows them to recover all or part of their claim.
Legal forms and publicity
Most securities require legal forms of constitution and publicity measures. For example, a gratuitous suretyship, that is, a third party who commits alongside you, requires the drafting of a separate suretyship contract from the credit contract. Similarly, the constitution of a mortgage (real security) requires a notarial deed (authentic act) and is registered at the Mortgage Registry. Failure to comply with these formalities can completely nullify the value of a security.
Types of guarantees
We distinguish between real securities and personal securities:
- Real securities involve one or more specific movable or immovable assets. For movable assets, we generally speak of pledges, and for immovable assets, we mainly refer to mortgages.
- Personal securities involve the commitment of a third party, a person who serves as security. These are essentially suretyships.
Accompanying your credit application with a guarantee
A client who has submitted their credit application may sometimes face an initial refusal: in this case, it may turn out that the solvency guarantees presented by the client are insufficient.
In this case, our brokers work with you to find solutions:
- Thus, in the case of a couple married under the regime of separation of property: if one of the spouses wants to take out a loan to purchase a property in their own name, they may be asked to obtain the signature of their spouse;
- Similarly, the borrower could enlist the help of a third party as personal security.
These guarantees will fundamentally change the profile of the borrower’s file and thus can usefully facilitate the acceptance of the credit application.