Bank Guarantee -Definition, Example, Types & Benefits

If you are an importer or exporter dealing in an international trade transaction, entering into frequent trade deals is your primary business activity where you come in touch with the unfamiliar parties-to-the-contract. To avoid the associated overseas risks such as different laws & rules or non-payment & non-fulfillment, you apply for a range of trade finance instruments and a Bank Guarantee is one of them. If you are also a global trader and want to know what a bank guarantee is and how it works, this blog can help you. What Is A Bank Guarantee? A bank guarantee or also known as BG is a legal document issued by a bank or a financial institution to assure exporters/sellers/suppliers that they would be paid on time if the applicant/importer/buyer fails to pay the amount or fulfill the terms & conditions mentioned in the contract. Here, the issuing bank or the financial institution acts as a guarantor for the exporter to pay him with the whole or remaining amount as the case may be. In other words, a bank guarantee is a legal promise made by an issuing bank or a financial institution to the exporters on behalf of their applicants that in the event if the importers are at default, they would be paid on time with a full-fledged amount by the issuing bank. It assures the exporter that they will get their amount for the delivered goods & services to the importer.