Surety

Surety refers to the promise made by a third party to pay a debt if the primary obligor is unable to do so. The guarator is referred to as the surety. If the surety pays the sum, the surety then gains the legal right to recover the amount from the original obligor. The amount of the obligation may be set aside in advance by the surety in an escrow fund. Examples of entities that can act as a surety are an individual, a bonding company, an insurer, and a bank.

The surety concept is needed in cases where the primary obligor has a low credit rating and so would otherwise be unable to secure financing.