Bank Guarantee are very common utilized in business entities. The bank gives a Guarantee if the debtor fails to pay the debts, then the bank will pay it.
Through the aid of Bank Guarantee one can easily able to purchase expensive machinery, equipment & other related expenses to cover up.
When any bank signs on a Bank Guarantee agreement, it means the bank is giving a promise to pay any amount according to the request made by the borrower. After, signing a bank Guarantee agreement is a high risk for Banks.
Also Read:- Unsecured Business Loan Low Rate of Interest
Types of Bank Guarantee?
There are six types of Bank Guarantee:-
- Performance Guarantee
- Bid Bond/Earnest Money Deposit (EMD) Guarantee
- Financial Guarantee
- Advance Payment Guarantee
- Foreign Bank Guarantee
- Deferred Payment Guarantee
Advantages of Bank Guarantee
- A Bank guarantee is mostly provided against collaterals securities.
- The process of a Bank Guarantee is quite simple and completed quickly.
- A Bank guarantee reduces the business risk transaction. It encourages the seller to increase their business on a credit basis.
- Banks Gurantee charge low fees for Gurantees, which is beneficial for small-scale businesses.
Whether you have a current account or salary account, a bank Guarantee allows you to utilize this facility. But make sure you have collateral to pledge to financial institutions. Get at competitive interest rates.
Also Read:- Business Loan
Different between Letter of Credit (LOC) and Bank Guarantee (BG)
A Letter Of Credit is a financial instrument used in international trade. The buyer’s bank pledges to pay the seller’s Bank for the goods. Whereas the bank Guarantee means, the bank agrees to pay the amount in case the applicant fails to pay within the given time period.
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