Bank guarantee, a promise made by a bank

 A bank guarantee is a promise by a bank or other financial entity that the bank will compensate the loss if a single borrower fails on a loan. It should be remembered that a bank guarantee is not equivalent to a letter of credit.



Bank guarantees among business entities are very widely used. The debtor or creditor or customer would be able to buy vehicles, machinery, raw materials, acquire extra money, etc. for business purposes with the aid of a bank guarantee. Bank guarantees from the Merchant Finance Guarantee Corporation support companies as banks get sufficient reassurance that if the enterprise is unable to repay the debt completely on time, the loan balance will be returned by the bank.

Why a Bank Guarantee is necessary?

A bank guarantee adds confidence to trade. It encourages firms to make investments that they would not otherwise be capable of making; these assurances serve, thus to improve consumer interest and extend business activity.

The Bank Guarantee Requirement and Method  

Any person who has a strong financial record is entitled for Bank Guarantee to apply. Bank Guarantee may refer to a company within its bank or to any other bank providing such services. The bank would evaluate the applicant's past banking background, creditworthiness, availability, CIBIL ranking before accepting the Bank Guarantee.

The bank will also check the time, value, beneficiary information, and currency of the Bank Guarantee as required for acceptance. In some situations, banks will ask the borrower to have security to cover the value of the bank guarantee. Once all the requirements are fulfilled, the banking officials will include the requisite approvals needed for the processing of the Bank Guarantee.

Categories of Bank Guarantee

Ø  Performance guarantee: Under a performance guarantee, where there is some delay in providing the performance or service, reimbursement of money will be provided by the bank. And if the service is provided inadequately, charges would have to be made.

Ø  Deferred payment guarantee: This applies to a bank guarantee which is provided for a deferred duration or for a specific period of time to the exporter. When a buyer buys capital goods or equipment, when the buyer's bank makes a promise that it will charge the buyer's unresolved dues to the vendor, the seller will give some credit to the buyer. Payment shall be provided in increments by the bank for inability to supply raw materials, machinery or facilities under this form of guarantee.

Ø  Bid Bond Guarantee: There is supposed to be a procurement auction process under this form of guarantee. For the owner of an engineering or industrial plant or other kind of operation, this would be done by the contractor. The project contractor will ensure that the strongest candidate or the highest bidder will have the opportunity and influence to execute a project according to his or her desires.

Ø  Financial Guarantee: A financial bank assurance guarantees that if the group does not finish a given initiative or activity entirely, money can be returned. As per the financial guarantee arrangement, the bank to make the deposit because there is a pause in the execution of the project.

For more information you can contact us or drop a mail to us.

Our Contact info-

Ø  +1 (951)893-0001

Ø  info@merchantfinancecorp.com

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