A bank guarantee is a rather specific service of banks, which is represented by a financial offer. It is similar in various ways to lending or insurance, but it has many unique features. This service is presented with a specific guarantee of a banking institution that if a client violates the terms of an agreement, then the bank will pay the funds for it.
The essence of the guarantee
Such a bank service is provided only to enterprises and individuals with high solvency and who are regular customers of a particular institution.
The service assumes that the bank becomes the third party to any transaction. A bank guarantee is a promise of a bank that its client will cope with its obligations under the contract, and if for any reason difficulties arise with this process, the bank will independently repay the debt.
Terms of Service
To conclude such an agreement, certain conditions must be met:
- a written agreement must be concluded between the two parties to the transaction;
- this transaction must have a monetary expression represented in advance, the cost of a particular product or service, and a penalty may also be prescribed, as the bank guarantees that it will transfer these funds on its own if the client is unable to cope with the terms of the agreement;
- the customer, the recipient of the service or product, wants the terms of the contract to be safe, therefore, requires the participation of the bank in the form of a guarantor;
- the contractor must contact the bank directly, where he is a regular customer, with a request to issue a bank guarantee.
The essence of this service is that the bank provides confidence to one party to the transaction that all the terms of the agreement will be fulfilled by the other party. This ensures the protection of the interests of the buyer or customer. If the service is not provided for any reason, and the terms or other conditions are violated, it is the bank that will compensate the costs of the other party, providing coverage for the damage.
Parties to the agreement
When using such a banking service, there are several participants. Obtaining a bank guarantee involves the participation of the parties:
- Guarantor. It is represented by the banking institution itself. This service is offered by a small number of large and reliable banks. Before participating in the contract, the organization carefully checks its client, as it must be sure that there will be no situation when it will be necessary to return losses to the second party. Banks issuing a bank guarantee are represented in small numbers. You can find out exactly where you can apply for this service on the website of the Ministry of Finance. The data available on the resource are updated monthly.
- Principal. Submitted by contractor by agreement. It is he who turns to the bank for a guarantee. He must transfer to the bank a certain amount of funds represented by the payment for the service received. The guarantee is provided only after all the documents of the contractor are carefully checked. Bank employees must make sure that the contractor, represented by the company or individual, is a solvent and reliable client.
- Beneficiary Submitted by the customer by agreement. It is he who must receive services or goods, and at the same time he wants to make sure that the obligations under the contract will be fully fulfilled and on time. Therefore, it requires a bank guarantee. At the expense of her, his interests are protected. If, for various reasons, the contractor is unable to timely fulfill the terms of the contract, he will receive a large amount of funds from the bank.
When concluding a guarantee agreement, the beneficiary only requires the presence of additional security represented by different securities for the planned transaction. He does not need to contact a banking institution, nor does he deposit his funds when paying for the guarantee. But if he himself violates the terms of the contract, for example, does not make an advance on time, then he may not receive a guarantee from the bank.
Agreement Requirements
Several legislative acts contain information on the possibility of applying bank guarantees. But at the same time, there are no specific requirements that the parties to such an agreement must meet. Therefore, each banking institution has the ability to develop its own form of this document, so these contracts can vary significantly from one bank to another.
But at the same time, certain requirements for a bank guarantee must be observed. Therefore, the nuances are certainly included in the contract:
- the names of the three parties involved in this transaction are entered;
- characteristics of the bank, principal and beneficiary are given ;
- It prescribes how long the guarantee provided for a specific fee is valid;
- information about the value of the bank guarantee is entered, namely, it indicates how much money the client will transfer to the bank, and usually the amount is set within 3% of the amount of obligations, but in difficult situations the fee can increase up to 10%;
- the amount of compensation is calculated, represented by the funds that will be paid to the beneficiary on the part of the bank, if the principal, for various reasons, is unable to meet his obligations;
- The direct subject of the guarantee is presented, represented by the specific obligations provided by the contract.
The regulation of cooperation depends on the correct preparation of the document.
The nuances of the proposal
There are many different types of guarantees. Bank guarantees are a confirmation by the bank that the principal will fulfill the terms of the contract, therefore they differ in the type of the drawn up contract or the nature of the existing obligations. It depends on this information which information fits into the agreement.
Such a banking product is considered complex and useful. This is especially true for enterprises that wish to conclude a specific transaction, but the counterparty has serious doubts about the profitability of this process. The unique action of a bank guarantee enables each party to the transaction to feel confident in making a profit from cooperation.
Warranty Purpose
It is banks that are considered the most reliable and stable institutions, so if they give their guarantee, this gives confidence to each participant in a transaction that all the terms of the contract will be met by the other party. When receiving a bank guarantee, principals can count on concluding profitable contracts. They look more reliable in the eyes of contractors compared to competitors.
The bank guarantee minimizes the risks involved in the transaction. At the same time, the bank studies the various parameters of the principal, so you can be sure of its integrity and reliability.
Who can become a principal?
The conditions of a bank guarantee are strict, therefore, numerous requirements are presented to the client. We study the different nuances of the transaction and the company itself. Previously, bank employees must make sure of the following points:
- the business is legally clean;
- financial condition is stable;
- the company is solvent;
- the company is stable and reliable;
- all other obligations during the entire period of operation of the enterprise were fulfilled in a timely manner and in full;
- There is an ideal business reputation as a conscientious and reliable partner;
- The amount of the contract should correspond to the result of cooperation.
Through such a thorough check, it is guaranteed that the principal is truly considered a reliable enterprise for cooperation.
Pros of attracting a bank
For a principal, the use of a bank guarantee has many parameters. These include:
- the number of counterparties willing to cooperate on optimal conditions is increasing;
- the company receives the status of a stable and faithful partner;
- given the opportunity to conclude major contracts or to bid;
- if, even for various reasons, the terms of the contract are violated, the principal has time to return the funds to the banking institution on previously agreed terms.
Therefore, such a service is becoming increasingly popular among many companies.
Benefits for Banks
Providing a bank guarantee has some advantages for the banks themselves. They do not need to spend a lot of money on participation in the transaction, and at the same time they require high payment from the principal. Due to a thorough check, it is rarely necessary to pay off obligations for a client.
Even if the terms of the agreement are violated, the bank will still return its funds, and often it does require the principal from the collateral property, which can be sold at auction to return the money.
Types of Warranties
Bank guarantees are numerous transactions that can be made in relation to a variety of contracts. The most popular types of guarantees are:
- Execution of the state contract. Accounting for bank guarantees of this type is carried out on the basis of the provisions of the Federal Law No. 223. Without its presence, the potential contractor represented by the contractor will not be allowed to consider the application. Therefore, in order to work under state contracts, in any case, you will have to contact the bank.
- Tender. It is a mandatory guarantee, which is issued by firms planning to participate in tenders on trading floors. It applies only to the obligation to conclude a contract with the customer. Not valid during the collaboration.
- Customs It is applied if it is required to provide obligations to the customs authorities. This usually refers to the payment of various customs duties, if an installment plan is provided for this.
- Trial. Such a guarantee is applied in situations when, when considering a claim, it becomes necessary to seize the company's property. Therefore, it is needed for the judiciary.
There are many other types of other guarantees, which depend on the existing obligations. They may be secured or unsecured. There are even syndicated ones issued by several banking organizations.
Design steps
In order to receive this bank service, several successive steps are required. A bank guarantee for the execution of a contract is executed upon completion of the following actions:
- Initially, there must be a need for a guarantee, for example, it is required to participate in government procurement or sign a contract with an organization;
- then a search is made for a bank that will act as a guarantor, for which it is necessary to study all possible options on the website of the Ministry of Finance;
- an application for a guarantee is prepared, after which it is transferred to the bank, where it is planned to issue it;
- all parties to the transaction are registered in the application, and the conditions for using the guarantee are also described;
- additionally, all documents on the planned transaction are transferred to the bank;
- a direct guarantee contract is drawn up, and all issues regarding cooperation are preliminary discussed;
- funds are transferred to the bank for services.
Further, if necessary, the bank pays money at the request of the beneficiary, if there are good reasons. When drawing up an agreement, a lot of attention is paid to the term of a bank guarantee, which is usually equal to the duration of the transaction itself or can end at the moment when the goods are directly delivered.
Conclusion
Thus, bank guarantees are considered as demanded offers of banks. They are issued only in large and reliable institutions. Act as a guarantee that a particular party to the transaction will cope with its obligations. If this does not happen for various reasons, then it is the bank that will pay compensation to the other side.