Also called as Bank Guarantee or BG MT760, it’s issued by a bank on behalf of its client upon their request. If a client wants to enter into a new project or trade deal, then they require a Guarantee to assure their commitment towards their counterparties. In this case, the client contacts their bank to get BG MT760. The issued BG acts as a promise to assure the counter party, that in case of buyer’s default, the bank will meet all financial obligations as stated in the contract.
As BG gives required assurance, nowadays, most of the trade dealings are happening with the use of Bank Guarantee. Further, this BG MT760 helps traders to do business & execute trade deals with big companies which couldn’t be possible without the use of Letter of Guarantee. All these makes Bank Guarantee as the popular financial instruments in today’s trade market.
When importers / exporters get connected to do business, Trust is the glue that holds both parties. In such cases, the trust is easier to maintain, if a third party stands as a guarantor to bear any unforeseen crisis.
BG MT760 is an agreement between 3 parties, viz. the applicant, the recipient, and the bank. Whereas, the bank promises to cover a loss; if a buyer defaults. So by having a third party assurance, BG promotes trust between traders. And this will greatly encourage them to conclude their deal.
For example: If a developer is going to sign a construction contract with the contractor or a buyer enters into a contract for the supply of goods, then they require a Bank Guarantee to assure their commitment in terms of payment to their counter party. This Guarantee gives assurance that the task will be completed without any hurdles. In case of any default, the bank obliges to meet the commitment as agreed in the contract. However, it doesn’t give any guarantee to any party regarding the completion of a project or the supply of goods and so on.
In case of any default in the contract and if the counter party needs to claim the payment means, then the BG needs to be liquidated. To claim the BG, the seller or the contractor needs to submit the required documents to the bank as per the contract terms. The bank will review the documents and if it complies, then they will make the payment as compensation to the counter party.
In BG, three types of parties involved:-
Since the bank is taking a commitment on behalf of the clients, the applicant needs to prove their creditworthiness to the bank to get BG from their bank. The bank will also do a proper background check of the applicant and make an account of credit history, liquidity, past transactions and so on.
Even if the applicant complies with all these terms, they will demand certain percentage of the guarantee value as cash margin, assets as surety or third party assurance. The bank will start working on your BG request, only if the client obliges with all the terms and conditions of the bank.
Being an International Bank Guarantee Providers for over 3 decades, we understand the challenges of the traders. Also, we are well aware the pledging cash collateral is difficult for someone whose working capitals are spread in other business or trade deals.
If you are a buyer or contractor who require Bank Guarantee & if you don’t want to tie up your working capital in a single deal, then you can get help from us. To apply BG MT760 on your behalf, without any cash margin. We provide BG MT760 from rated banks within 48 working hours.
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