Bank guarantee

The bank guarantee is the most common bank collateral.

In the case of a bank guarantee, the bank undertakes to compensate the beneficiary of a given transaction if business partner does not fulfill its contractual obligations. Therefore, a separate fee must be paid to the bank.

Every guarantee transaction has three participants: 

1. the guaranteeing financial institution, which issues the guarantee upon request and against payment, 
2. the beneficiary of the guarantee, to whom the guarantor bank promises to pay if its contractual partner fails to fulfill its obligations, 
3. the principal of the bank, whose contractual activities the bank guarantees.  

A bank guarantee is a safe collateral, since it is a unilateral, independent and irrevocable commitment of the bank. In this case, the bank 's payment obligation is independent of the existing contract with the business partner, and therefore also of the reason why the specific contractual conditions were not met.

The performance obligation of the guarantor bank can be unconditional or conditional. In the case of an unconditional guarantee promising payment at first demand, the bank fulfills its client's obligation without any further ado. This happens when you receive the beneficiary 's validation (receipt of demand) statement about the client's non-performance. In the case of a conditional guarantee, on the other hand, the bank 's payment obligation arising from the guarantee is subject to certain conditions in addition to the declaration of use. This could be, for example, the obligation to submit specific documents. 

In international business relations, we can also face the fact that, as a beneficiary, we receive a bank guarantee from our business partner under various names. For the sake of their transparency, the standard rules of the ICC (ICC Uniform Rules for Demand Guarantees - URDG 758) are available. 

(The ICC emphasizes that some national laws distinguish between the concepts of "guarantees", "bonds", "undertakings" and "indemnities". However, they are used synonymously in international practice. However, the distinction between the terms guarantee and guarantee is essential in case of collateral.) 

The bank guarantee should not be confused with the bank guaranty. The bank guarantee is suitable for guaranteeing any contractual conditions, which is why we can come across many versions of it in the business world. The most famous: 

• tender guarantee; 
• advance repayment bank guarantee; 
• bank guarantee promising exchange of bills; 
• bank guarantee promising to open a letter of credit; 
• bank guarantee for commission warehouse; 
• delivery of goods against a guarantee in the absence of a bill of lading; 
• quality guarantee promising good performance; 
• a bank guarantee promising the return of goods in the case of a contract of employment.  

In the case of international goods transactions, we most often come across a guarantee of payment. As an as an exporter, a letter of letter of credit or bill of exchange of exchange does not protect against the risk of non-payment. We can insist that our customer's contractual payment promise be confirmed by a financial institution with a bank guarantee. In such cases, we receive a bank statement in which the bank guarantees the payment of the value of the goods in its own name, if our customer does not pay. This payment collateral is common in sales with a business loan. 

It is a common situation that, as an entrepreneur, the lack of adequate collateral prevents you from taking out a borrowing. The credit guarantee provides a solution to this situation. The bottom line is that the risk of non-payment by the borrower (i.e. our company) is taken over by an external party, the guarantee institution. In this way, our company can become creditworthy for a financing bank.

And there is one more important aspect to all of this: the guarantee is provided on a business basis, so the fee is always borne by the person requesting the guarantee.