A promise made by a bank to meet the liabilities of a debtor if that person fails to fulfill his contractual obligations. There are two types of bank guarantees — direct or indirect:
A direct guarantee is one where a bank is asked to provide a guarantee by its account holder, in favor of the beneficiary.
In an indirect guarantee, a second bank issues a guarantee in return for an already-issued guarantee. if the second bank suffers losses when a claim is made against the guarantee, the issuing bank ensures that it compensates all the losses.
Guarantees provide comfort to the beneficiary; if the applicant fails to meet his obligations (either financially or by performance) as per the contract made between the applicant and the beneficiary, the beneficiary will have the guarantee to turn to for payment.
Having a guarantee issued in support of a client’s transaction can help the client grow and expand their business by postponing current payments for goods and/or services to a later date, providing comfort to buyers, allowing clients to bid on transactions, and without requiring that Y4F’s clients tie up their available cash.
Following are the different bank guarantee types that are available:
A Bank Guarantee is a versatile tool that can function as a number of instruments: a bid bond, a performance bond, an advanced payment guarantee, a warranty bond, a letter of indemnity, a payment guarantee, a rental guarantee, or a confirmed payment order.
There are certain terms and conditions that the guarantee by the bank is subject to. This stipulates that it is mandatory for the bank to pay the beneficiary the fixed amount promised on behalf of the client once the conditions are satisfied.
Issuance Procedure:
We need the following documents/ information for finalising the draft –
Step-wise
Note: The charges will depend on the value of the Financial Instrument, Tenure, and Issuing Bank / Financial Institution.
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