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Bank Guarantee vs. Surety Bond – What’s the Difference

Bank Guarantee Vs Surety Bond – Bank Guarantee Providers

Bank Guarantees and Surety Bonds are the financial instruments that are used to ensure protection to the parties; who involved in the supply of goods or services. These instruments assure the parties that, if any default occurs; then the banks will be liable to pay as per the contract terms. Even though these MT760s are used for providing the assurance required, there are some major differences between Bank Guarantee vs Surety Bond.

What is a Bank Guarantee?

Bank Guarantee is a written undertaking issued by banks on behalf of their clients to ensure that they will meet their financial commitments without fail. Further, with this promise, the banks undertake that they will pay the specific amount; if the terms stated in the contract are not been met.

Mostly used for safer cross border trade deals, BG MT760 helps traders to grow their business. Also, this allows traders to conclude trade deals with big companies; which they can’t able to do without having BG MT760.

What is Surety Bonds?

Surety Bonds or Performance Bonds is a contract between three parties, i.e. the Principal (the Contractor or the Seller), the Surety (the Bank) and the obligee (the buyer or the project owner). Further, the banks acts as a guarantor to the obligee that the principal will fulfill the terms of the contract without fail.

Also, these surety bonds are mostly in construction contracts. Further, this assures that in case, if the contractor fails to perform the task; then the project owner can claim the bond to recover the losses incurred. And, if the claim is valid; then they will receive the reimbursement of the amount stated in the contract.

Bank Guarantee vs Surety Bond – The Major Difference!

Issued by banks on behalf of its clients, Bank Guarantees assure the payment on behalf of their clients to their counterparties. Whilst, Performance Guarantees are the legal binding between three parties. That is – The Principal, The Bank, and The Obligee to assure the performance of the project or supply of products.

Bank Guarantees serves as a payment assurance given by the buyer to their counter parties. On the other hand, surety bonds assure performance on a particular project or trade deal.

BG MT760 assures that the buyer will make the payment; if the seller fulfills the contract terms without fail. And in case, if any default occurs, then the banks will be liable. Whereas, the Performance Bond assures that they can claim the bond; only if any default occurs or non fulfillment of obligation stated in the contract.

How to Avail Bank Guarantees and Bonds On Your Company’s Behalf

If you’re in need of guarantees or bonds to conclude your trade deal or project; the first thing that strikes your mind to get it from banks. But to issue such MT760s on your behalf; they will demand from you to provide a certain percent of the trade value or bond value as a cash margin.

In case, if you didn’t meet the terms, then the bank will reject your request. So, to help the needy importers, exporters, contractors, and suppliers with their trade finance requirements; we, the trade finance providers provide Bank Guarantees and Surety Bonds from rated Banks without blocking your cash funds.

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