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.