"KZN pilot held in Dubai on debt claim" ...This was the headline of a local newspaper recently. 1 In summary the pilot signed surety for his son's debt and found himself in a jail cell as a result.
All too often people needing to raise finance are presented with a suretyship document to sign. A suretyship is an agreement to take on the responsibility of another's debt or obligation.
DO YOU REALLY WANT TO PAY SOMEONE ELSE'S DEBT?
A large and well known Bond Origination company recently reported that house prices continue to fall with a further 0,7% in February of this year with an average house price now R827,000. Forecasts are that the current low level of activity and negative property price growth would continue until June/July of 2009.
Sub prime....credit default swaps.....short selling....and other fine words
Words which until recently most of us non banker types (and even some banker types) had never heard of, much less knew the meaning of or understood the concepts. I have read a number of articles in recent days particularly on credit default swaps (CDS) which appear linked to our latest financial market turmoil. The bottom line: greed. I will attempt to give you a layman's version...
Have you ever noticed that the person selling a business always wants more that you think its worth? Ian de Lange of Seed Investment Consultants aptly describes a common ailment of business owners known as the endowment bias.
This is the theory that people place a higher value on an asset once their right to that asset has been established. In other words people, and more specifically, investors, place a higher value on an investment that they own relative to that same investment if they did not own it.
When you buy a business...are you paying for the value of the business or are you paying the market price?
Buying a business based on the market price is likely to lead to paying too much.
Those words spoken by King Solomon over 2000 years ago hold true today, particularly where complex documents and legalese preclude a clear understanding of what you are signing.
Suretyships are generally furnished by people in an unequal bargaining position and are usually automatically part of the pack of documents requiring signature in order to obtain credit or banking facilities.
Companies may now finance the purchase of their own shares!
