Bank guarantee is one of the most commonly used collateral instruments for mitigating business risks. It is a written declaration where a bank agrees that it shall satisfy a lender up to the amount specified in the guarantee deed if a borrower fails to perform his obligation or if other conditions specified in the guarantee deed are met. A bank guarantee covers the seller’s risks (inability to pay debts), as well as the buyer’s risks (failure to deliver goods, failure to deliver goods in the required quality, delayed delivery, etc.)
A guarantee deed in which the parties specify the scope of the guarantee and other conditions relating to the guarantee forms the basis of a bank guarantee.
Types of bank guarantees provided are as follows:
- payment guarantees – for payment of invoices, rent, toll, loan/lease
- non-payment guarantees – for an offer, performance of a contract, retention money, return of advances
If you use bank guarantees often, we can create a bank guarantee facility for you. Individual guarantee deeds are then issued under the approved facility, as required.