Bank Guarantee, Standby LC, Performance Bond, Bid Bond, Advance Payment Guarantee, Bank Comfort Letter

Bank Guarantee (MT- 760) is an irrevocable commitment issued by a bank on behalf of their customer who has entered in a contract to purchase goods from a supplier and promised to meet all financial obligations to the supplier in the event of default. In other words, a Bank Guarantee is an undertaking of a bank on behalf of its customer.A Bank Guarantee often helps firms conduct their business with parties they would never normally get the chance to deal with. Many suppliers will often choose to do business with customers that have a Bank Guarantee because it eliminates the risk that they will not receive the appropriate payment for the goods that they are selling.Bank Guarantees are issued for a variety of purposes, such as to improve the credit ratings for issuers ofindustrial development revenue bonds and commercial papers; to provide back-up facilities for loans granted by third parties; to assure performance under construction and employment contracts; and to ensure the account party satisfies financial obligations payable to major suppliers. The Standby LC or SBLC (MT-760) is a Standby payment guarantee issued by a bank on behalf of their client that is used as “payment of last resort” if the client fails to fulfill a contractual commitment with a third party.Standby Letter of Credit is created as a sign of good faith in business transactions and are proof of a buyer’s credit quality and repayment abilities.Standby Letter Of Credit is often used in International trade transactions, such as the purchase of goods from locally and internationally. Standby Letter of Credit can be used as Collateral for Credit Enhancement. It is ideal for companies planning to expand their business and do not want to give up equity of their company. This improves company’s cash flow as it allows the company to use their funds for alternate purposes before payments become due. Performance Guarantee/ Bond or Surety Bond is a financial tool that act as guarantee to secure any claim by thebuyer to the seller in case of default in delivery or performance for supplying huge commodities as per the contract terms .Performance Bond are commonly used in the construction and development of properties, where an owner or investor may require the developer to assure that contractors procure such bonds in order to guarantee that the value of the work will not be lost in the case of an unfortunate event (such as insolvency of the contractor, etc.). In other cases a performance bond may be requested to be issued in other large contracts besides civil construction projects. The Tender Bond Guarantee (Bid Bond) is used when a buyer or developer is obtaining tender for a contract and requires a bond as security against the risk of the successful bidder failing to enter into the contract.Getting Tender Bond Guarantee is very important if you want your company to become competitive in theconstruction industry. In fact, in some localities, a Tender Bond Guarantee is required so you can obtain licenses and permits. Most importantly, almost all project owners and developers will require a bond from you before you can bid on their projects.If you want to obtain juicy contracts from importers or principal developer to ensure that buyers or project ownerswill trust your company, then you need to secure Tender Bond Guarantee. The Advance Payment Guarantee is used when a developer makes an advance payment to a contractor and obtains a bank guarantee as security against that payment. The guarantee is payable on demand and contains optional wording for the value of the guarantee to reduce as interim payments are made under the contract.In trading markets, to secure any claims by the buyer on the seller for reimbursement of the buyer’s advance payment on the contract price before delivery of the goods (or advance payment of the full contract price) in the event that the seller has failed to meet their contractual delivery obligations in full.This Advance Payment Guarantee not only enables the exporter to receive advance payment of the last term of the contract but the importer to be covered in the event of a problem during that period. Bank Comfort Letter popularly known as BCL (MT-799) or a Bank Commitment Letter is issued by a bank on behalf of their  customer who has entered in a contract to purchase huge merchandise/commodities from asupplier confirm‎ing their financial capability to carry out the transaction.