Bank Guarantee

Bank Guarantee

Global trade can be financed with a ‘Bank Guarantee – BG-MT760’.

A lending institution issues a bank guarantee, ensuring the liquidity of the liabilities of a debtor. This implies that the bank is the payer in case there is payment default by the debtor/customer who can acquire goods, buy equipment or even avail a loan.

The guarantee also allows a customer/company/agency to invest in avenues leading to business growth and scale up entrepreneurial activity.

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Relevance of Bank Guarantee.

What Is Bank Guarantee ?

Bank guarantees can be direct and indirect guarantees. The direct guarantees are for the beneficiary, used in foreign or domestic business. Direct guarantees are useful in cases of lack of clarity about the existence, validity and enforceability of the main obligation.

Indirect guarantees involves a second bank in case of export business, if government agencies or public entities are the beneficiaries of the guarantee where direct guarantees of another country are not entertained.

Bank rigidity in assessing a client makes it difficult and time consuming.

There is a possibility of collateral which involves high-value or high-risk transactions.

There are few differences between the ‘Letter of Credit (LOC)’ and the Bank Guarantee (BG).

LOC is an obligation accepted by a bank while BG is an assurance given by the bank.

Bank retains the primary liability to make the payment in case of LOC but pays after the default in case of BG.

LOC ensures payment while BG assures compensation.

LOC can involve multiple parties while BG can have only 3 parties.

LOC is suitable for international business while BG is primarily for individual transactions.

The Bank shoulders more risk in case of LOC while customer assumes the primary risk in case of a BG.

Despite the differences and difficulties, we facilitate your international trade by providing a MT760 thereby guaranteeing payment to the selling agency (Client - B) on behalf of the sourcing agency (Client -A).

The requirement is sent to us by the sourcing agency (Client -A). The letter has to be supported by either a duly filled up invoice or a MOU of sale-purchase between Client -A and Client -B. It gives a tentative valuation of the deal being undertaken.

A formal approval from our side requires a due diligence to be carried out about the genuineness of the proposed transaction. We charge a fee for the activity (usually 20% of the proposed deal).

We draft a service agreement between Client-A and ourselves (Client-C).

We proceed to activate the LC once the service agreement is signed by both Client-A and Client-C. Client-A needs to share the relevant documents to be presented to an identified Bank which then issues the BG in 2 banking days.

BG-MT760 came into being to introduce a sturdier payment method. The risk of default gets mitigated by activating the BG between Client-A and Client-B. The payment is materialized as soon as the selling is confirmed. An intermediate arrangement of securitization is to be in place till the payment reaches the source to the target (the advisory bank from the seller side).

A BG-MT760 comes into action, which is a promissory note of the buyer’s worth. It is useful when goods are transacted, and payment is ensured thereof. BG-MT760 can be treated as a means for credit enhancement, without channeling precious equity for the same. This way, it gives an expanded cash-flow scenario helping other business activities, without involving any cash transaction.

The involved parties in the transactions are: a) the guarantor b) the applicant and c) the buyer .

Benefits of the BG-MT760 involve the following

Improves credit-worth of the issuer.

An instrument of alternative ensured payment in case of a default.

We can service our clients with the BG -MT760 even in case of inadequate Bank arrangements. Transparency is our trademark .

There are three kinds of Bank Guarantee

• Performance Bond (PB).

• Advance payment Guarantee- APG (acts as collateral for reimbursing advance payment from the buyer if the seller does not supply the specified goods as per the contract).

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