Bank Guarantee
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Prime Enterprise FZ LLC
What is a Financial Bank Guarantee?
Also called a Bank Guarantee or BG MT760, it’s issued by a bank on behalf of its client upon their request. If a client wants to enter into a new project or trade deal, then they require a Guarantee to assure their commitment towards their counterparties. In this case, the client contacts their bank to avail BG MT760. The issued BG acts as a promise to assure the counter party, that in case of buyer’s default, the bank will meet all financial obligations as stated in the contract.
As BG gives required assurance, most of the trade dealings happen with the use of Bank guarantees. Further, this BG MT760 helps traders to do business & execute trade deals with big companies which couldn’t be possible without the use of a Letter of Guarantee. All these make Bank Guarantee, the popular financial instrument in today’s trade market.
Are you looking to get Standby LC for your domestic purchase? Contact Bronze Wing Trading L.L.C. SBLC Providers in Dubai! We can extend our bank facilities from European Banks and will issue the required MT760 at ZERO Collateral.
What is the Process of Bank Guarantee?
When importers / exporters get connected to do business, Trust is the glue that holds both parties. In such cases, the trust is easier to maintain, if a third party stands as a guarantor to bear any unforeseen crisis.
BG MT760 acts as an agreement between 3 parties, viz. the applicant, the recipient, and the bank. Whereas, the bank promises to cover a loss; if a buyer defaults. So by this, BG promotes trust between traders; which greatly encourages them to conclude their deal.
For example: If a project owner is going to sign a construction contract with the contractor or a buyer enters into a contract for the supply of goods; then they require a Bank Guarantee to assure their commitment in terms of payment to their counter party. This gives assurance that the contractor will complete the task without any hurdles. In case of any default, the bank obliges to meet the commitment as agreed in the contract. However, it doesn’t give any guarantee to any party regarding the completion of a project or the supply of goods and so on.
In case of any default in the contract and if the counter party needs to claim the payment means, then the BG needs to be liquidated. To claim the BG, the seller or the contractor needs to submit the required documents to the banks as per the contract terms. The banks will review the documents and if it complies, then they will make the payment as compensation to the counter party.
Advantages of Bank Guarantee
- Improve the credit ratings for issuers of industrial growth, revenue bonds, and commercial papers.
- Provide backup facilities for loans granted by third parties.
- Assure performance under construction and employment contracts.
- With BG, you can spread your working capital around, rather than tying up in a single project or trade deal.
