What is bank guarantee in simple words

A bank guarantee is a guarantee given by the bank on behalf of the applicant to cover a payment obligation to a third party. In other words, the bank becomes a guarantor and is answerable for the person requesting the guarantee in the event that they are unable to make the payment they have agreed with a third party.

What means bank guarantee?

A bank guarantee is a type of financial backstop offered by a lending institution. The bank guarantee means that the lender will ensure that the liabilities of a debtor will be met. In other words, if the debtor fails to settle a debt, the bank will cover it.

How do you give a bank guarantee?

To request a guarantee, the account holder contacts the bank and fills out an application that identifies the amount of and reasons for the guarantee. Typical applications stipulate a specific period of time for which the guarantee should be valid, any special conditions for payment and details about the beneficiary.

What is bank guarantee in India?

A Bank Guarantee is a guarantee from a bank in which the Bank would fulfil the obligations of the debtor if the debtor fails to do so. Bank guarantees is thus a mechanism wherein a third party performs a due-diligence and accepts responsibility on behalf of the debtor – for a consideration.

What are the advantages of bank guarantee?

Pros of bank guarantee:\n\n The costs and risks associated with a business operation are reduced by a bank guarantee. It promotes the seller/beneficiaries to build their organisation on credit terms because of the low risk. Guarantees are usually charged at a reasonable rate by banks, which benefits even small businesses.