What is a Bank Guarantee?A bank guarantee is a legal agreement between the Bank, the beneficiary, and the applicant ie. the borrower where the bank provides a guarantee to the beneficiary on the behalf of the borrower that the contractual obligations will be met in case the borrower is unable to do so. In other words, in a bank guarantee, the borrower/debtor appoints a lending institution ie. a bank to cover its losses if he defaults or fails to pay the loan. The bank assures the beneficiary through this bank guarantee that if the borrower does not perform his legal obligation or fails to settle the debts, then it will be taken care of by the bank. Process Of Applying For Bank GuaranteeIn addition to corporate and business customers, individuals can also apply for bank guarantee services. To request a bank guarantee, certain steps need to be followed:
Types of Bank Guarantee
Benefits of Corporate GuaranteeBank guarantee adds creditworthiness to the borrower and assures the beneficiary that the amount of debt will be covered by the bank.
Also Read: What Is The Difference Between Bank Guarantee And Letter Of Credit? What Is A Corporate Guarantee?A corporate guarantee is different from a bank guarantee service. It is an agreement where the guarantor ie. the third-party takes the responsibility to cover a debt or handle debt payments in the event if the borrower defaults. The guarantee is beneficial for both the debtor and the lender where the lender is assured of getting debt amount from the debtor since there is a legal guarantee by a third-party. Parties In The Corporate Guarantee:In a corporate guarantee, the parties are the entities or individuals that are entitled to fulfill the financial obligations mentioned in a contract. There are mainly three parties in the standard corporate guarantee. Here they are as follows:
The following information is required to be mentioned in a corporate guarantee:
Types of Corporate Guarantee:There are two main types of corporate guarantee:
These are the main points of difference between a bank guarantee and a corporate guarantee. Before applying any of those, it is recommended to check the agreement’s terms and conditions for both the buyers and sellers. Related Read: Difference Between Bank Guarantee and Collateral
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