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A guarantee is basically a legal undertaking by a financial institution on your behalf (the third party) where it guarantees the payment of a certain sum of money up to a certain limit to a beneficiary, in the event that your business fails to settle a debt or perform a legal obligation. A financial institution may take into account a number of factors before issuing a guarantee i.e. extent of liability, period expiry and credit standing.
 
 
  Type    Bank Guarantee (BG)    Shipping Guarantee (SG)
     
  Usage  
     
     
     
  Features  
     
     
     
     
     
     
     
     
     
     
  Benefits  
     
     
  Provides guarantee favouring a third party for performance, payment, etc.  
     
     
  Types of guarantees:  
     
 
  Tender Guarantee or Bid Bond
  Performance Guarantee
  Advance Payment Guarantee
  Warranty of Maintenance Guarantee
  Retention Guarantee
  Security Guarantee
 
     
     
     
 

  Shows the customer's/applicant's capability to perform work as specified in the contract.
     

  Able to obtain more favourable trade terms from the beneficiary if a BG is produced.
     

  No necessity to raise cash to meet deposit requirements and funds could be used to support working capital requirements.
     

  Allows customers to have access to funds especially where BG is issued for advance payment or release of retention funds under contracts.
 
   
     
  To expedite the release of goods which have arrived before the original transport documents.  
     
 

  Issuing of guarantee by the financial institution to the shipping agent to release goods without production of original transport documents.
     

  Usually issued where the goods are initially imported under Letter of Credit and is to be earmarked against trust receipts/banker's acceptance faclities.
 
     
     
 

  Facilitate meeting of production or contract deadlines.
 
     
 
 
 
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For more information on guarantees or other financing products for asset acquisition, working capital ,trade financing and trade services , please download our booklet on SME- Financing Products For Your Business.