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Bank Guaranty

A bank guaranty is a payment obligation of the guarantor bank towards the beneficiary (in a form of a letter or a message) to issue a payment of funds on behalf of the principal in case if the latter fails to meet his payment or any other obligations, upon receiving of a claim according to the terms of the obligation.

Benefits of the bank guaranty:

  • A more affordable instrument, compared to factoring or traditional credit financing;
  • Used to receive a payment deferral or to ensure meeting of the obligations;
  • An effective tool for securing the performance of financial/contractual obligations and insurance of risks.
  • An affordable form of financing due to its resourceless character.

Types of Bank Guaranty:

Payment guaranty – a bank’s obligation, issued upon the buyer’s request for the benefit of the beneficiary (the seller) to pay a certain sum to the latter in the case if the buyer fails to meet his payment obligations for shipped goods (executed works, rendered services).

Execution guaranty – a bank’s obligation issued to the buyer upon the seller’s request, to pay to the buyer a certain sum in the case is the seller ails to meet his shipment obligations.

The guaranty of competitive bidding – an obligation of the bank, issued upon request of a bid competition participant, who has expressed a desire to participate in the bid competition and has submitted his proposal to the organizer of the competition to pay a certain sum to the latter in the case if the participant fails to abideby the rules of the competition

Advance payment rebate guaranty – a bank’s obligation issued upon the request of the seller, to return the advance payment to the buyer in the case if the seller fails to complete his obligations of goods shipment / work execution / service rendering.