The Hanson Group of Companies
www.thehansongroupofcompanies. com
THINGS TO UNDERSTAND ABOUT THE BANK
GUARANTEE (BG)
what is a Bank Guarantee (BG)?
A bank guarantee is a type of financial instrument which is offered by a financial institution. This banking instrument means that the bank will ensure that the liabilities of the debtor will be met. If the debtor fails to settle the debt due to any worse situation, then the bank will
The bank guarantee will enable the customer or the debtor to acquire the goods, and services, purchase the equipment and many more. Make sure that you choose the right lease BG SBLC providers so that you can reduce the risks can get the guarantee that usually comes with an interest rate.
UNDERSTANDING MORE ABOUT THE BANK GUARANTEE
(BG):
The Bank Guarantee (BG) is when the financial institution promises to cover the loss if the borrower defaults on the loan. The guarantee will let the company buy what it needs so that it will help the business grow.
There are different types of bank guarantees which are available at the financial organization. It includes direct and indirect guarantees. Banks typically use direct bank guarantees in domestic or foreign businesses which are issued directly to the beneficiary. Direct bank guarantees apply when the bank’s security doesn’t rely only on the existence, enforceability, and validity of the main obligation.
Now, let's talk about indirect bank guarantees. It occurs most often in export businesses especially when public entities or government agencies are the beneficiaries of the guarantee. Many countries usually don’t accept foreign banks and guarantors because of legal issues. With the indirect guarantees, one usually uses a second bank which is typically a foreign bank with the head office located in the beneficiary’s country of domicile.
Now, let's talk about indirect bank guarantees. It occurs most often in export businesses especially when public entities or government agencies are the beneficiaries of the guarantee.
Many countries usually don’t accept foreign banks and guarantors because of legal issues. With the indirect guarantees, one usually uses a second bank which is typically a foreign bank with the head office located in the beneficiary’s country of domicile.
Let’s know about it in detail with the example.
The payment bank guarantee usually assures the seller that the amount involved in the trading will be paid on the mentioned date in the guarantee. The advance payment guarantee acts as the collateral for reimbursing advance payment from the buyer. Usually, the credit security from the lease BG SBLC providers serves as the collateral for repaying the loan.
Let's say that Company A is a new restaurant and wants to buy $3 million in kitchen equipment for the restaurant’s growth. The equipment vendor will usually ask Company A to provide the Bank Guarantee (BG) to cover the payments before they ship the required kitchen equipment to Company A. At this time, company A will request the bank guarantee from the financial institution where they have the bank account. The bank will carry out the background check of the client and then offer the bank guarantee to them. Usually, the bank will offer the bank guarantee within a week or two from the date of application.
