A bank guarantee is a written commitment from a bank to pay a beneficiary if the party the guarantee supports (the applicant) fails to meet a stated obligation. It is a form of protection for the beneficiary.
Where guarantees appear
- Securing performance of a supply or construction contract.
- Protecting an advance payment made to a supplier.
- Supporting a tender or bid.
Guarantee versus letter of credit
A letter of credit is usually the way a transaction gets paid. A guarantee, like a standby letter of credit, is typically a safety net that is called on only if something goes wrong.
Points to check
- The amount, validity period and exact wording of the guarantee.
- The conditions for making a claim.
- The fees, and any collateral or margin the bank requires.
- Which rules govern it, such as URDG 758 for demand guarantees.
Issuance depends on the bank's assessment of the applicant. No intermediary can promise that a guarantee will be issued.
