Bank
Guarantee

BGs are an important banking system and play a crucial role in facilitating domestic and foreign trade. Its significance is that it adds to creditworthiness, acts as a trusted instrument to assess businesses' stability and creditworthiness, helps reduce the risk of the beneficiary, and ultimately protects against any probable loss.

Bank Guarantee is an agreement between three parties: the bank, the beneficiary, and the applicant. The applicant is the party who seeks the bank guarantee from the bank, and the beneficiary is the one who takes the guarantee. The bank issues BG on receipt of the applicant's request. This receipt is of the "guarantee amount" towards some purpose / underlying transaction towards the beneficiary. If the claim is received from the beneficiary by the bank (guarantor), it results in BG invocation. In the case of a foreign BG, there is also a 'correspondent bank' apart from these three parties. If a bank has no branch in any foreign country, it issues BG in that country through its 'correspondent bank.' Before issuing the guarantee, the bank does all the required due diligence, financial and business analysis.

The key features of valid guarantee:

Types of Bank Guarantees:

Advance Payment Guarantee: This guarantee ensures that they will refund the advance amount in the event of no fulfillment of the terms.

Financial Guarantee: The bank here guarantees that the applicant will meet the financial obligation. And the bank, as a guarantor, has to pay in case he fails.

Foreign Bank Guarantee: Foreign BG is a guarantee issued for a foreign beneficiary.

Payment Guarantee/Loan Guarantee: The guarantee is for assuring repayment of the loan/ the payment. A guarantor must pay on behalf of the defaulting borrower if the party fails to do so.

Deferred Payment Guarantee: If the bank guarantees deferred payment, that guarantee is called the Deferred Payment Guarantee. For instance, a corporation buys a machine on a credit basis with payment terms being six equal installments. In this case, since the payment is deferred to a later time, the creditor seeks a deferred payment guarantee for an assurance that the payment would reach him in the given time.

Bid Bond Guarantee: As part of the bidding procedure, this guarantee ensures that the bidder can enter into the contract on which he has bid under the terms the bidding is done.

Performance Guarantee: Here, as specified in the guarantee document, the guarantee given is to fulfill a specific task and complete the same in the prescribed/agreed-upon manner.

Guarantee for Warranty Obligation or Warranty Bond: This is an assurance that, as per the arrangement, there will be a timely delivery of the ordered goods.

Shipping Guarantee: If the consumer does not pay, this guarantee protects the shipping company from all forms of damages. This document allows the client to take ownership of items.

Advantage of Bank Guarantee (BG) Services from Finnova Advisory

Finnova Advisory offers Bank Guarantee (BG) assistance. We have formed alliances with numerous banks and financial institutions to provide a wide range of lender options. According to your eligibility and financial requirement, we recommend quick processing, competitive interest rates, and multiple collateral options to ensure that this is the best option for your business. We also deal with private, PSUs, co-operative banks, and NBFC’s.

Along with this, our team of specialists takes pride in offering unbiased advice to our customers regarding our services. Acting as a mediator, we are readily available to help you apply for corporate finances service from some leading banks and financial institutions.