A bank guarantee is a bank’s written commitment to pay the amount provided for by the conditions of the bank guarantee, to the party in benefit of which the guarantee is issued, in case the party by order of which the guarantee is issued, does not meet the contractual obligations.
A bank guarantee is not a means of payment; it solely gives the parties entering the contractual relations a confidence that the concluded transaction shall actually be executed.
- a bank guarantee is issued on the basis of a contract (agreement) but constitutes an independent bank’s commitment;
- all bank guarantees are irrevocable, unless otherwise provided thereby;
- bank guarantees are governed by legislation of the country of the guarantor bank, or by the Unified Rules on Demand Guarantees (MTP No.458).
Necessity for the use of guarantees:
We recommend you should use bank guarantees if you are:
- an importer not willing to pay advance payments: the guarantee will let you get a deferred payment;
- an exporter, whose counterparty keeps off of making an advance payment for some reasons;
- an official dealer/distributor requiring a deferred payment.
Advantages of bank guarantees:
- increases the rate of circulating assets turnover of the enterprise.
- only actually delivered goods (rendered services) are paid for.
- a less expensive instrument as compared to traditional bank loans or factoring.
Priorbank JSC issues guarantees of the following types:
- payment guarantee (including guarantees in benefit of tax, customs authorities, etc): ensures the seller’s claim to the buyer as to repayment of the cost of an agreement in the specified term;
- guarantee of loan repayment: the bank undertakes to repay the principal’s debts to the beneficiary in case of the principal’s failure to fulfil its obligations under the loan agreement;
- tender guarantee: a guarantee ensuring the tender participant’s fulfilment of its liabilities to the tender organizers;
- performance guarantee: according to this guarantee the bank undertakes to repay the buyer/customer with a certain amount if the seller/supplier fails to fulfil its duties related to delivery or other contractual liabilities;
- payback guarantee: the bank undertakes to reimburse to the beneficiary any amounts advanced by said beneficiary in benefit of the applicant.
Advantages of Priorbank JSC guarantees:
- long-term and efficient experience of working with the product;
- a well-known brand in the international banking and financial community; as well as the experience of the Raiffeisen group;
- experienced and qualified personnel;
- broad network of correspondent relations;
- competitive cost of the product as well as a short guarantee issuing term;
- consulting support of customers;
- possibility of issuing guarantees which do not require issuing counter-guarantees.