GUARANTEE / ASSURANCE

The guarantee serves to reduce the risk of transactions. Widespread in loan transactions, other financial products, and high-value investment and commercial transactions. The risk of non-performance or incorrect performance can be mitigated with various collaterals and guarantees.

Countless contracts and commitments based on them are created, the fulfillment of which has some kind of risk of.

Some of these can be considered normal business risks. Such a case is, for example, whether our supplier really delivers the ordered fresh baked goods to our burger joint. This also includes whether the construction contractor finishes the hamburger restaurant's terrace on time and in good quality for the summer season. Normal contractual conditions usually adequately protect against their non-fulfilment. Thinking here, for example, of the payment in arrears and the penalty.

However, there are many business situations in which these legal institutions prove to be few and insufficient. This is typically the case with credit, leasing and factoring. If, for example, we take out a loan, the credit provider gives us the amount of the loan in the contract in advance. The borrower undertakes to pay the loan amount and interests within the term.

It is understandable that some kind of guarantee is required for these cases as well, which covers the credit provider's risk assumption if we do not pay. The essence of a guarantee is therefore that it is the collateral of a loan or other liabilities. If the borrower is unable to fulfill the repayment obligation agreed in the contract, the collateral goes to the credit provider and he can decide what to do with it: keep it or sell it.

Collateral can be almost anything that is marketable and accepted by the creditor. It often happens that the collateral is also the purchased real estate or leased asset. An example of this is the property purchased with the home loan. In the case of asset-based financing, the asset whose purchase was loan by the loan.

An important element in the range of guarantee instruments is the suretyship. In this case, someone undertakes to pay the debt instead of the original debtor if he does not pay or is unable to pay. A special case of this is cash-paying surety, when the creditor can ask the guarantor to step in and pay instead of the original debtor at any time in case of default.

Such a surety credit guarantee as a guarantee security for bank loans and other financial products. This is a very common condition for granting loans in the micro, small and medium-sized enterprise sector. The essence of this is that an external party, the guarantee institution, assumes the risk of non-payment by the borrower company. As a guarantee for the loan, the guarantee organization undertakes a cash-guarantee callable on first demand to the bank providing the loan.

Banks are also considered reliable debtors. It is common for them to provide some kind of collateral for their clients in relation to the non-fulfillment of a contract. Typically such an asset is a bank guarantee or bank guaranty. In both cases, the bank undertakes the payment instead of someone else. A bank guarantee is the bank 's independent payment commitment. The bank fulfills this regardless of the fulfillment of the original contract. However, in the case of a bank guaranty, the bank can use legitimate objections (for example, it can refer to the fact that the transaction was not completed according to the contract).