A bank guarantee is a guarantee obligation issued by the bank on behalf of a company for the benefit of a domestic or foreign beneficiary. The bank acts as a guarantor and therefore assumes financial liability. A Foreign Bank Guarantee refers specifically to a bank guarantee that has a foreign beneficiary. In the case of a bank guarantee that is associated with foreign trade, the beneficiary is a company’s overseas contract partner.
In some countries beneficiaries will not or can not accept guarantees from a foreign bank or trust. In cases like this there are times when a Bank Guarantee can be arranged through a correspondent bank as an assigned guarantee. Banks request that the correspondent bank issue the guarantee to your company’s contract partner, thus obligating them to reimburse the correspondent bank for funds that it may have to supply or pay to the beneficiary.
The most common Bank Guarantees associated with export trade include a tender guarantee which is also known as a bid bond, performance bond or performance guarantee, an advance payment guarantee or bond, and a maintenance guarantee. Maintenance Bank Guarantee is also known as warranty guarantee or retention bond.
A guarantee securing the payment towards the purchase price is one of the most common guarantees used in the financing of import trade.
With this form of Bank Guarantee a company and the bank agree to issue the bank guarantee through a counter-obligation. The counter-obligation means that your company obliges to reimburse the bank for all payments that it may have to make on the basis of the bank guarantee. The counter-obligation also includes provisions on the guarantee fee charged on the bank guarantee and other terms and conditions between your company and the bank. Companies can also receive a guarantee limit that makes it easy to order a Bank Guarantee from the bank without signing any separate counter-obligations.