What is Bank Guarantee?
If one party to a deal doesn’t keep their end of the deal, a bank guarantee is a financial backstop made by a financial institution that promises to cover the debt. A bank guarantee lets a client of the bank buy goods and equipment or do foreign trade. It is usually used outside of the United States. If the customer doesn’t pay a debt or send things that were promised, the bank will pay for them.
Geeky Takeaways:
- A bank guarantee is an agreement from a bank to pay off a person’s or business’s debts if they don’t keep their end of a deal.
- Bank guarantees are like American reserve letters of credit, but they are mostly used outside of the U.S.
- Most of the time, bank guarantees are used for foreign business deals. However, people may need to rent a house in some countries.
- A performance bond guarantee, an advance payment guarantee, a warranty bond guarantee, and a rental guarantee are some of the different types of guarantees.
Table of Content
- Purpose of Bank Guarantee
- Types of Bank Guarantees
- Examples of Bank Guarantees
- Advantages of Bank Guarantees
- Disadvantages of Bank Guarantees
- Requirements for Obtaining a Bank Guarantee
- Duration and Term of a Bank Guarantee
- Financial Instruments for a Bank Guarantee
- Difference between Bank Guarantee and Letter of Credit (LOC)
- Frequently Asked Questions (FAQs)