Financial Security

Obtain More Security With A Bank Guarantee

When you do business, you do not want to run unnecessary risks. Especially not abroad. A bank guarantee can help with this. Because that gives you more certainty that an assignment will be executed and paid for.

Why a bank guarantee?

Suppose you want to make an investment, but you cannot pay the amount in one go. Or you want to convince a business partner to work with you. Or you want financial security from a foreign client.

A bank guarantee can then be a solution because the counterparty has the confidence that the transaction amount will be paid.

A bank guarantee is a handy tool, especially when doing business internationally.

How does it work?

If someone fails to meet his financial obligation, the bank guarantee can claim the payment from the bank. Banks often have models of bank guarantees with fixed elements. Duration and amount are entered in consultation. The bank guarantee is only valid within the predetermined period, although it can also be issued without a fixed end date. The applicant pays a commission for the bank guarantee.

The applicant must also sign an indemnification deed. This gives the bank the right to recover the guarantee – if it has been paid out – from the applicant. But the bank already minimizes its risk by blocking an amount in the account of the applicant in the amount of the bank guarantee, or by deducting it from the credit facility.

The guarantee is released again if the customer officially releases it again through an exemption, the so-called discharge.

Types of Bank Guarantees

Types of bank guarantees are payment guarantees, prepayment guarantees, maintenance guarantees, bidding guarantees, rental guarantees, implementation guarantees, and customs guarantees. For example, rental guarantees are often requested by entrepreneurs when buying or renting business premises.

Benefits of Bank Guarantees

A bank guarantee is cheaper than credit.
With a bank guarantee, you can negotiate better conditions with your business partner, for example, a lower rate or a longer payment term.

Cons of Bank Guarantees

There is a risk of incorrectly calling the bank guarantee if it does not have a specific end date.
The bank guarantee seizes your credit space.

Note the end date

You can attach a bank guarantee to a fixed-term or opt for an indefinite period of validity. The EVD, the body that supports and encourages Dutch companies in doing business internationally, advises to always state an explicit end date, for example, the moment that it is delivered. Without an explicit end date, there is a risk that the counterparty will claim the money months or even years later at the bank. This will then payout, on which the victim must go to court to reverse this unfair calling.