Bank Guarantee

a guarantee from a lending institution ensuring the liabilities of a debtor will be met

Bank Guarantee

Bank Guarantee

What is a "Bank Guarantee"

A bank guarantee is a guarantee from a lending institution ensuring the liabilities of a debtor will be met. In other words, if the debtor fails to settle a debt, the bank covers it. A bank guarantee enables the customer, or debtor, to acquire goods, buy equipment or draw.

 

Bank Guarantee

A bank guarantee is a lending institution’s promise to cover a loss if a borrower defaults on a loan. The guarantee lets a company buy what it otherwise could not, helping business growth and promoting entrepreneurial activity. For example, Company A is a new restaurant wanting to buy $3 million in kitchen equipment.

 

The equipment vendor requires Company A to provide a bank guarantee to cover payments before shipping the equipment. Company A requests a guarantee from the lending institution keeping its cash accounts. The bank essentially cosigns the purchase contract with the vendor.

 

Types of Bank Guarantees

A direct guarantee is typically used in foreign or domestic business and issued directly to the beneficiary. The guarantee applies when the bank’s providing security is not reliant on the existence, validity and enforceability of the main obligation. Guarantees are often chosen for cross-border transactions since the beneficiary asserts claims rapidly due to the general nature of the guarantee. A direct guarantee is easier to adapt to foreign legal systems and practices due to not having form requirements.

 

An indirect guarantee is often issued for export business, especially when government agencies or public entities are beneficiaries. Many countries do not accept foreign banks and guarantors because of legal issues or other form requirements. With an indirect guarantee, a second bank, typically a foreign bank with a head office in the beneficiary’s country of domicile, is utilized.

 

Examples of Bank Guarantees:

  • A bid bond prevents companies from tendering bids and not accepting or executing the awarded contract:
  • A performance bond serves as collateral for the buyer’s costs incurred if services or goods are not provided as agreed in the contract.
  • 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 warranty bond serves as collateral ensuring ordered goods are delivered as agreed.
  • A payment guarantee assures a seller the purchase price is paid on a set date.
  • A credit security bond serves as collateral for repaying a loan.
  • A rental guarantee serves as collateral for rental agreement payments.
  • A confirmed payment order is an irrevocable obligation where the bank pays the beneficiary a set amount on a given date on the client’s behalf.

Process & Payment

Below, the normal procedure for the submission and issuance of a Bank Guarantee from  Bank 

 

Step 1:

Application is made to Bank for opening of a BG/SBLC including but not limited to the following:

  1. BG/SBLC application form (Provided by Bank upon request).
  2. BG/SBLC indemnity signed and notarized.
  3. Desired verbiage of BG/SBLC, If none provided Bank will provide its normal BG/SBLC verbiage.
  4. SWIFT code and Address of beneficiary Bank.
  5. Compliance  documents including but not limited to:
  6. Passport copy of applicant
  7. Articles of incorporation of applicant company
  8. Brief summary and/or business plan of underlying transaction.

 

Step 2:

  1. The departament of compliance reviews all documents presented and evaluates acceptability of documents.
  2. The Departament of compliance then either approves application or denies and shall inform the applicant of such decision.

 

Step 3:

  1. The Bankprepares draft of the BG/SBLC as it is comfortable to issue and forwards to client for approval.
  2. All drafts shall be in lined with rules and regulations governing the issuance of BG/SBLC.

 

Step 4:

  1. The client approves the draft and:
  2. Signs a contract agreeing to the terms and conditions of issuance and issuance charges as negotiated.
  3. The Departament of Compliance issues the invoice for the agreed upon charges

 

 Step 5:

  1. Client makes payment of charges as per agreed upon payment structure.
  2. Client shall provide TT/Wire copy of payment made to SCB account.
  3. The Departament of Compliance   shall confirm to client credit of funds upon receipt of funds to Departament of Compliance account.

 

Step 6:

  1. The Bank uploads draft to SWIFT system and provides copy to applicant for final approval of message.
  2. Upon approval given by the applicant Bank then releases the SWIFT to beneficiary bank coordinates.

 

Step 7:

  1. Copies of released SWIFT are then forwarded to the client via email or hard copy as requested (In case the client is represented by an advisor, then it is forwarded to the advisor only).

 

Step 8:

  1. Any amendments to BG/SBLC are subject to approval of Departament compliance.
  2. The following is the procedure for payment schedule. The following are general terms:
  3. Fees are paid before the issuance of each SWIFT message. In the case of RWA for a BG/SBLC fees need to be paid before hard copy/email issuance.
  4. The Departament of Compliance does not engage in JV payment structures and will not issue any message for zero monies paid upfront.
  5. SCB will not accept payment via ICBPO.
  6. If the Departament of Compliance   fails to deliver the instrument as agreed upon, the same shall return the fees paid for that issuance.
  7. The fees paid for an RWA and MT799 will be used as credit towards fees to be paid for the MT760.
  8. In the case that Bank successfully delivers RWA/MT799 and client does not go ahead with MT760; fees paid for RWA and MT799 will not be returned.
  9. All fees shall be agreed upon and stated in a formalized contract.

Important Notice

There are cases where others have pretended to represent and issue instruments in the name of Platinum Invests.

 

Platinum Invests is not responsible for these issuances and bears no responsibility for those that are not authorized directly from Platinum Invests. Clients are urged to verify the authenticity of any documentation before paying fees/commissions. Platinum Invests is not responsible for any fees/commissions not paid directly to Platinum Invests. If you suspect fraudulent activity please contact us immediately.

Direct Communication

 

+34 961318773

project-financing@platinum-invests.eu

compliance@platinum-invests.eu

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