Bank Guarantees

Overview

A bank guarantee is a promise by a bank to pay a beneficiary an agreed amount if the bank's customer fails to meet a contractual obligation. Guarantees that pay on a written demand are often governed by the ICC's Uniform Rules for Demand Guarantees (URDG 758). They are common in trade, supply, and construction contracts.

How it generally works

1. The contract states that a guarantee is required, with its amount and period.
2. The customer applies to its bank, which reviews the application and any security.
3. The bank issues the guarantee to the beneficiary if it approves.
4. The guarantee expires or is returned when the obligation is fulfilled.

Potential business use cases

• Giving a buyer assurance that a supplier will deliver as agreed.
• Supporting payment obligations between trading partners.
• Meeting a contract requirement from a customer or public body.

General documentation

Requirements vary by transaction, country and institution. Commonly requested items include:

• The contract or tender document requiring the guarantee
• Company registration and director identification
• Draft guarantee wording, if the beneficiary has specified it
• Financial statements or other credit information
• Evidence of any security offered

Important considerations

• A guarantee carries fees and usually requires security or a credit limit.
• The wording matters: whether a claim needs proof of default or only a demand.
• Only the issuing bank can confirm the status of its own guarantee.

FAQs