A bank guarantee is a written contract between an individual and their bank to be shown in the event of a transaction to demonstrate that the bank will pay the debts of the individual should he/she not be able to pay. Where the individual defaults on payments or simply cannot afford to pay, the company requiring payment can call upon the bank to pay on the customers behalf.
Starting Business consultants can provide you with comprehensive advice and guidance on bank guarantees and their uses and guide you in how to offer them as a service to your customers.
A bank guarantee is a written contract whereby a lending institution takes full responsibility for paying the debt of a debtor who can no longer pay. It forms the basis of an agreement between a bank, debtor and the company receiving the payment to ensure debts will be paid.
Bank guarantees are typically sought by customer’s party to a large business deal where significant volumes of money are considered. Large organizations and governments will normally seek a bank guarantee as an effective business and investment tool.
The main benefits of a bank guarantee is that it offers a level of security and surety for companies selling goods or services or entering into large scale business deals with individuals or companies that may not have a credible credit history. Sellers are given the security of knowing that if the purchaser fails to pay, the bank will.
A bank guarantee is for a set amount of money and is valid for a specific period of time and can in many cases only be used for one particular deal.
In order to obtain a bank guarantee a thorough investigation is conducted by the bank as most banks will not offer the guarantee where there is a risk the debtor may default the payment and leave the bank to pay for the debts. Bank guarantees are one of the most useful tools to obtain financing.
Starting Business can assist with regards to advising financial institutions on when to issue and when not to issue bank guarantees. It should be noted that for a bank to issue a guarantee, the applicant must open an account with that particular financial institution first. Businesses that need to accept guarantees as a form of payment solution will be required to open an appropriate bank account to facilitate bank guarantee processing.
Additionally, we can guide applicants in filling in the necessary documents and applying to the appropriate institution for a bank guarantee. We will support you with filing the official application form and writing the letter of application while also advising clients on how to cash in a bank guarantee.