A bank guarantee facility is a guarantee given by a bank to a contract between two external parties, such as a buyer and a seller or, in the case of a guarantee, an application and a beneficiary. The bank guarantee helps the beneficiary manage risk by assuming responsibility for contract completion if the buyer defaults on their debt or obligation.
Bank guarantees are important for small businesses because they provide the bank’s due diligence on the application credibility as a viable business partner for the guarantee recipient. In essence, the bank certifies the applicant’s creditworthiness by co-signing on the applicant’s behalf for the specific contract that the two external parties are entering into.
Facts about the bank guarantees
A bank guarantee assures a beneficiary that if the counterparty and applicant like a standby letter of credit sblc to the contract are unable to do so, the bank will uphold the contract.
Bank guarantees are used to facilitate business in cases where the recipient would otherwise be too risky to engage.
A bank guarantee’s underlying contracts might be financial, such as loan repayment, or performance-based, such as a service supplied by one party to another.
Types of bank guarantees
A bank guarantee covers a certain amount and a specific time period. It specifies the circumstances in which the contract’s guarantee is applicable. A bank guarantee might be either monetary or based on performance.
Financial bank guarantee
In a financial bank guarantee, the bank guarantees that the buyer will pay the seller’s debts. If the buyer fails to do so, the bank will bear the financial burden for a nominal fee that is payable to the buyer when the guarantee is issued.
Performance base bank guarantee
For a performance-based guarantee, the beneficiary can sue the bank for damages if the bank fails to fulfill the contract obligations. If the counterparty fails to deliver on the services as promised, the beneficiary will sue the guarantor – the bank – for their non-performance losses.
Bank guarantees from foreign
A fourth party – a correspondent bank operating in the beneficiary’s place of domicile – may be involved in foreign bank guarantees, such as in international export circumstances with proof of funds providers.
The Bank’s personnel provide complete advisory support in terms of bank guarantee information and bank guarantee type selection based on the demands of the customer. If you want some of these facilities, contact a trusted bank.