What is a Bank Guarantee?

Business loan lender, bank guarantee provider, sblc providers, bank guarantee meaning

What is a Bank Guarantee?- Understanding BG and its uses

A bank guarantee, like a letter of credit, is a promise from a bank or lending institution that it will assume liability for a particular debtor if its contractual obligations are not met. In other words, the bank offers to stand as the guarantor on behalf of a business customer in a transaction.

So the bank guarantee guarantees a sum of money to a beneficiary but the bank only pays that amount if the opposing party does not fulfill the obligations outlined by the contract.  Bank guarantees protect both parties in a contractual agreement from credit risk.

Understanding Bank Guarantees

The term “bank guarantee” has no precise definition, particularly in international law. Some use the term exclusively to describe a transaction in which one party makes an independent guarantee commitment in respect of another party’s liabilities, regardless of the latter’s form and enforceability. Others describe guarantees as all transactions in which security is offered; from letters of comfort (which often are morally binding at most) to surety bonds and abstract payment undertakings.

A Bank Guarantee can be described as where one Bank (the Issuing Bank) issues an indemnity to another Bank (the Beneficiary Bank) or directly to a Beneficiary, on behalf of its account holder. The Issuing Bank will expect its account holder to pledge ‘assets’ to the bank for its issue.

Understanding Bank Guarantees - Kingrise Finance Limited
Kingrise Finance Limited – genuine bank guarantee provider

Bank Guarantee’s take many forms.

Some Guarantees are written to guarantee rental payments, some are written to guarantee payments upon the meeting of certain conditions. Some are even issued to guarantee loans and credit lines. All of them are written for a specific purpose to a specific party.

Each Bank Guarantee will be worded for the purposes it is intended. Some may be ‘callable upon demand’ or some may only be ‘callable’ when the Beneficiary provides notice of satisfaction of a pre-determined condition.

Currently, under the new Uniform Rules for Demand Guarantees (URDG 758) an underlying contract should be provided that states clearly the purpose of the Bank Guarantee and forms part of the Guarantee, for example a Rent Agreement or Payment Obligation.

In international trade dealings, buyers and sellers often experience problems of trust within each other to honor their payment obligations. A seller may find it difficult to ascertain the buyer’s willingness and ability to make payment, whilst the buyer may not be convinced that the seller genuinely intends to perform his side of the agreement or has the necessary financial and technical resources to do so. Just as the buyer needs protection against non-performance, so the seller will want to minimize or insure against the risk of non-payment. Documentary credits are generally used in such cases, yet various other forms of bank guarantees are available.

The common element in all these arrangements is that the guarantor undertakes to be answerable for the payment of a debt or the fulfillment of a payment obligation in the event of default by the party that is responsible for it.

There are different kinds of bank guarantees, including direct and indirect guarantees. Banks typically use direct guarantees in foreign or domestic business, issued directly to the beneficiary. Direct guarantees apply when the bank’s security does not rely on the existence, validity, and enforceability of the main obligation.

Individuals often choose direct guarantees for international and cross-border transactions, which can be more easily adapted to foreign legal systems and practices since they don’t have form requirements.

Indirect guarantees occur most often in the export business, especially when government agencies or public entities are the beneficiaries of the guarantee. Many countries do not accept foreign banks and guarantors because of legal issues or other form requirements. With an indirect guarantee, one uses a second bank, typically a foreign bank with a head office in the beneficiary’s country of domicile.

Examples of Bank Guarantees

Because of the general nature of a bank guarantee, there are many different kinds of bank guarantees:

  • A payment guarantee assures a seller the purchase price is paid on a set date.
  • An advance payment guarantee acts as collateral for reimbursing advance payment from the buyer if the seller does not supply the specified goods per the contract.
  • A credit security bond serves as collateral for repaying a loan.
  • A rental guarantee serves as collateral for rental agreement payments.
  • A confirmed payment order is an irrevocable obligation where the bank pays the beneficiary a set amount on a given date on the client’s behalf.
  • A performance bond serves as collateral for the buyer’s costs incurred if services or goods are not provided as agreed in the contract.
  • A warranty bond serves as collateral ensuring ordered goods are delivered as agreed.

Real-World Example

For example, BELON is a new 3 star hotel that wants to buy $5 million in hospitality equipment. The equipment vendor requires BELON to provide a bank guarantee to cover payments before they ship the equipment to BELON. So BELON requests a guarantee from the lending institution keeping its cash accounts. The bank essentially cosigns the purchase contract with the vendor.

Click here to apply for a bank guarantee from any prime AAA rated bank in the world.

How Bank Guarantees Work and Who Uses Them

There are several different kinds of bank guarantees, including:

  • Performance guarantees
  • Bid bond guarantees
  • Financial guarantees
  • Advance or deferred payment guarantees

Bank guarantees are often part of arrangements between a small firm and a large organization—public or private. The larger organization wants protection against counterparty risk, so it requires that the smaller party receive a bank guarantee in advance of work. A variety of parties can use bank guarantees for many reasons:

  • Assure a seller that a purchase price will be paid on a specific date.
  • Function as collateral for reimbursing advance payment from a buyer if the seller does not supply the specified goods per the contract.
  • A credit security bond that serves as collateral for repaying a loan.
  • Rental guarantee that serves as collateral for rental agreement payments.
  • A confirmed payment order is an irrevocable obligation, in which a bank pays the beneficiary a set amount on a given date on the client’s behalf.
  • Performance bond that serves as collateral for the buyer’s costs incurred if services or goods are not provided as contractually agreed.
  • Warranty bond that functions as collateral, ensuring ordered goods are delivered, as agreed.

Differences Between Bank Guarantees and Letters of Credit

Letters of credit are usually used in international trade agreements, while bank guarantees are often used in real estate contracts and infrastructure projects.

Bank guarantees represent a much more significant commitment for banks than letters of credit. A bank guarantee, like a letter of credit, guarantees a sum of money to a beneficiary; however, unlike a letter of credit, the sum is only paid if the opposing party does not fulfill the stipulated obligations under the contract. This can be used to essentially insure a buyer or seller from loss or damage due to nonperformance by the other party in a contract.

Applying for a Bank Guarantee

Bank guarantees are not limited to business customers; individuals can apply for them as well. However, businesses do receive the vast majority of guarantees. In most cases, bank guarantees are not particularly difficult to obtain.

To request a guarantee, the account holder contacts the bank or other financial services providers such as Kingrise Finance Limited and fills out an application that identifies the amount of and reasons for the guarantee. Typical applications stipulate a specific period of time for which the guarantee should be valid, any special conditions for payment and details about the beneficiary. In most cases, we require the customer to send his KYC documents for review. This will give us an idea of who the customer is and their creditworthiness.

Sometimes some banks require collateral. This can be in the form of a pledge agreement for assets, such as stocks, bonds, or cash accounts. But at Kingrise Finance Limited we do not require any of those, that is why we are the number one choice for bank guarantee issuance and monetization. Our bank guarantee cost/charge is 4% annually and if you are able to fulfil the obligation on time you can cancel the guarantee without paying additional fees.

Kingrise Finance Limited is a Hong Kong based money lender that is licensed to provide loans, business loans, project funding, trade finance, bank Guarantees (BG), Standby Letters of Credit (SBLC). bank instrument providers, SBLC providers and providers of all other types of Letters of Credit. We are a legally registered Financial Services provider with good reputation, unrivalled credibility and history. We only work with Top Prime rated global banks such as Citibank New York, UBS Switzerland, HSBC Hong Kong, Barclays Bank London, Chase Bank USA, Standard Chartered Bank, Bank of America or any AAA rated bank of your choice.

Bank Instrument Description:
1. Bank Instrument Type: Cash Backed Bank Guarantee {BG}
2. Face Value: USD 1 Million (Minimum) to USD 10 Billion (Maximum)
3. Issuing Bank: Barclays Bank London, HSBC Hong Kong, Citibank New York, Deutsch Bank Germany or any prime bank.
4. Age: One Year and One Day (with rolls and extensions where applicable)
5. Leasing Price: 4% of Face Value plus 2% brokers commission (Applicable only if there are brokers in the transaction)
6. Delivery: SWIFT MT-760
7. Payment: MT103 Swift Wire Transfer
8. Hard Copy: Bank Bonded Courier within 7 banking days.

Our bank instruments are cash backed and can be used for Discounting, Monetization and Private Placement Programs (PPP). They also can be used as collateral against a loan or credit line to secure Funding for Projects, as well as import and export transactions because many importers and exporters are always in need of bg bank guarantees as well as contractors, export finance, international trade finance etc.

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Why Choose Us?

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Best Top Rated Banks

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WE KEEP OUR PROMISE

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No Personal Collateral Required

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Loan amounts from $1 million to over $500 million

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BROKERS: We welcome new brokers who are direct to their clients. New brokers are welcomed and are rewarded with 2% commission on every deal they bring to us.

Kindly contact Us today for all your funding needs, including business loan, sme Loans, project financing, bank instruments (Bank Guarantee, Standby Letter of Credit, Letter of Credit) | BG|CD|BD|DLC|BCL|SBLC|SLOC.


Email: info@kingrisefinance.com
Blog: https://kingrisefinance.blog
Website: https://www.kingrisefinance.com

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