There are a few times when businesses need to guarantee their payments and when things like these come up, the best available option is a bank guarantee.
So what is a “bank guarantee” (BG)? Bank Guarantees are basically a kind of surety provided by any of the banks or financial institutions, where they guarantee to pay off the debts or any liabilities of an individual or a business group in case they are unable to do so on their own.
When someone uses a bank guarantee, it enables the person or the business organization to invest in a larger scale and can grow their business to a great extent.
How do BGs work?
Before you opt for BGs or Bank Guarantees, you must know how it actually works. It works like this—
1. The creditor, which means the bank, and the applicant must ascertain the need of the bank guarantee.
2. Then you as an applicant reach out to the bank or the financial institution and apply for a BG.
3. After that your bank or the financial institution runs a risk assessment and asks for security.
4. The applicant furnishes the security and the bank, or the financial institution processes the bank guarantee.
5. The bank guarantee is sent to the creditor’s bank or the creditor, or the applicant may be asked to collect it in person to give it to their creditor.
What are the types of BGs?
There are two types of BGs. They are –
1. The first one is Direct Bank guarantee which is issued by the bank of to the account holder directly in favor of the beneficiary.
2. The second one is Indirect Bank Guarantee which is basically issued by another bank in lieu of a counter-guarantee.
However, financial institutions like “The Hanson Group of Companies” can provided you some other types of Bank Guarantees like – Performance Guarantee, Advance payments guarantee, Payment Guarantee, Conditional Payment Undertaking, Guarantee Securing Credit line, Order and Counter Guarantee etc.
The Benefits of Advantages –
1. A BG allows the applicant to defer the payments for goods and services based on the security provided by the bank.
2. The best thing is, the money isn’t necessarily tied up in just one project; it can be spread around.
3. The cash is always available to explore and expand business.
BGs are really beneficial for you and you can get a lot of advantages out of it. All you need to do is approach your bank for further info.