Guarantees

A promise made by the bank for meeting the liabilities of a debtor when a person fails to fulfill his contractual obligations. Guarantees provide comfort to the beneficiary; in case the applicant fails to meet his obligations (either financially or by performance) as per the contract made between the applicant and the beneficiary, the beneficiary will have the guarantee to turn to for payment.

Types of Guarantees:

Performance Bond or Guarantee

A Performance Bond or Guarantee is utilized in the real estate industry to make sure a contractor completes a designated project. A performance bond is issued by a bank, insurance company or a financial institution in favour of a beneficiary by order of an applicant, against the applicant’s failure to meet its obligations as per an underlying contract.

Bid Bond

A Bid Bond is usually issued for bidders on construction or similar tenderbased projects. A bid bond is a debt secured by a bidder. In effect, it serves to secure the bidder's investment in the project and to discourage bidding by less serious players. A bank guarantee could be presented as a partial alternative to the financial capital typically required by a project owner.

Advance Payment Guarantee

An Advance Payment Guarantee, or Advance Payment Bond is an agreement where an issuer undertakes responsibility to return an advanced payment to the buyer, should the seller fail to meet his obligations.

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