Know What is a “Bank Guarantee” (BG)

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What Is a Bank Guarantee Things to Know?
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• Simply defining, it is a guarantee given by the
  bank or any other financial institution where it
  states that, if the person or organization who is
  taking the money fails to repay the debt, then
  the bank will cover for the debtor.

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Purpose

• The Bank Guarantee (BG) gives the safe platform
  for the transaction to occur.
• For example, if any company needs a big amount of
  equipment in order to boost the economy, then the
  seller (who is selling the equipment), may ask
  for the guarantee from the bank before selling
  any equipment as this transaction will be that of
  high amount.

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Types

• There are two types of guarantee. One is direct
  and another one is indirect.

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Direct

• As the name suggests, it applies to those types
  of guarantees given by the banks which directly
  involves the beneficiary.
• This type is often suitable for cross-border
  trades were legal system and other liabilities
  makes it difficult for the transactions to occur.
  It gives a secure environment.

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Indirect

• Indirect type comes into play when the system
  doesnt accept foreign banks.
• In this case, an indirect type of guarantee takes
  place where a mediator bank, which is a foreign
  bank whose office is located in the same country
  as the beneficiary, is taken up as the guarantor.
• How it helps a business? Sometimes small business
  owners in order to expand may need to take steps
  which could involve lots of risks.

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• On the other hand, to boost the economy, these
  steps might be required to more or lesser extent.
• Hence in these cases, by serving as the
  guarantor, the bank could ease the process of
  transition and thus, can have a direct influence
  on a countrys future.
• How can one apply for it?

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• Acquiring this type of guarantee requires various
  steps and banks do check upon various factors
  before issuing a guarantee.
• These checked up elements may include and not
  limited to trading history, credit history,
  liquidity etc.
• In simple words, the person or the organization
  needs to show its worth before applying for the
  guarantee.

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• It should also be mentioned that bank requires
  knowing how long does the guarantee is needed
  for, what amount is needed, for how long the
  amount is needed, beneficiary details along with
  any other information that bank may state as
  important.
• Only after giving this information, the bank may
  decide to give a guarantee.
• For examples Tender guarantee, advance payment
  guarantee, performance guarantee are some type of
  guarantees.

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• So now that you know what is a Bank Guarantee
  (BG) you should start investing on the same.

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