Meaning of Bank guarantee

A bank guarantee is a kind of guarantee from a lending organization. The bank guarantee signifies that the lending institution ensures that the liabilities of a debtor are going to be met. In other words, if the debtor fails to perform the obligation, the bank will cover it. A bank guarantee allows the customer, or debtor, to acquire goods, purchase equipment or draw down a loan. A bank guarantee is a promise from a bank or other lending institution that if a particular borrower defaults, the bank will cover the loss. A bank guarantee is similar to but not the same as a letter of credit.

Parties Involved

A bank guarantee is a contract between 3 different parties and they include:
• The applicant (the party that requests a bank guarantee from the bank and borrows from a creditor)
• The beneficiary (the party that receives a partial guarantee)
• The bank (the party that agrees to sign and assures payment in case the applicant fails to repay the loan)

Types of Guarantee

1. Guarantee of credit return. This guarantee is a security for repayment of credit.
2. Guarantees of advance payment return. This guarantee represents an obligation of the bank to return advance payment in the event that, after receiving an advance, the Seller does not perform its contractual obligations.
3. Guarantee of payment. This type of guarantee is a security of payment obligations of Buyer to Seller.
4. Contract execution guarantee. This guarantee is a security of timely delivery of goods or performance of services according to a contract.
5. Tender guarantees. This guarantee plays a role of security in those cases when the Company fails to perform its obligations to tender organization or other party that is stipulated in the order received by winning the tender.
6. Guarantee in favor of the customs authorities. This guarantee is a security of obligation of the company performing import and export operations to the Customs authorities for payment of customs taxes and duties.
7. Guarantees of warranty execution. This guarantee plays a role of security of quality for delivery to the contract terms.