A bank guarantee is a type of guarantee from a lending institution. The bank guarantee means a lending institution ensures that the liabilities of a debtor will be met. In other words, if the debtor fails to settle a debt, the bank will cover it. A bank guarantee enables the customer, or debtor, to acquire goods, buy equipment or draw down a loan.

Because of the general nature of a bank guarantee there are many kinds. Here are some common examples:

• A payment guarantee assures a seller the purchase price is paid on a set date.
• An advance payment guarantee acts as collateral for reimbursing advance payment from the buyer if the seller does not supply the specified goods per the contract.
• A credit security bond serves as collateral for repaying a loan.
• A rental guarantee serves as collateral for rental agreement payments 

• Performance Guarantee
• Bid Bond Guarantee
• Financial Guarantee
• Advance Payment Guarantee
• Foreign Bank Guarantee
• Deferred Payment Guarantee

Bank Guarantee is a financial instrument promising to pay the beneficiary the amount mentioned
therein upon maturity of the instrument. It is taken as collateral security or margin money for the finance assistance granted.
BG is a widely used and traded instrument in the international market.Thus easy for arranging line of credit or arranging fund for Finance assistance. Moreover the arranger (borrower) earns interest on the fund deposited with the Bank for the purpose of arranging BG.

 

If we have to deposit equivalent amount in the bank for getting a BG, then why not directly put that fund in the project itself?
BGs can be arranged either fund based or non-fund based. In fund based BG, you may have to deposit the equivalent amount of money into the bank, with issuing BG. In this case you are entitled to earn interest on the money blocked as deposit.
In non-fund based BG you may have to pledge your movable/ non-movable assets like shares,bonds, securities, properties etc. to get the BG. 

Clean BG means non-conditional and without any reference to a performance or non-performance of any act or tour de force. 

BG should be assignable and transferable means that this instrument should be worth negotiable for creating a line of credit.

Non-operative BG is just a pre-advice of BG to be issued as Operative BG. It is a replica (copy) of what is going to be issued. Non Operative BG is issued for the purpose of verification and clarification. Operative BG is the original and negotiable instrument.