Bank guarantee types

Answer 1

Types of guarantees

Due to their flexibility bank guarantees can be utilised to cover many kinds of risks in addition to those mentioned below. For more details please contact us.

Tender Guarantees/Bid Bonds

• Often called for in support of contract tenders, particularly in international trade situations.
• Provides the beneficiary with a financial remedy if the applicant fails to fulfil any of the tender conditions.
• Normally submitted with the other documents called for in the invitation to tender and remain valid during the period of tender, plus a grace period to allow the beneficiary to make demand.

Performance Bonds

• Most common form of guarantee, used in a variety of situations.
• Normally required at the time of commencement of the contract and will extend over the duration of the contract, plus a grace period to allow the beneficiary to make demand in the event of non-performance of the obligations covered by the guarantee.

Advance Payment Guarantees

• Used where the applicant calls for the provision of a sum of money at an early stage of the contract. The beneficiary can recover the amount paid in advance, or a part thereof, if the applicant fails to fulfil their underlying contractual obligations.
• May provide for pro rata reductions to the guarantee amount on presentation of certain documents or on a specified date or dates.
• Duration will depend on the underlying contract, but many run up to the anticipated date of the final delivery, plus a grace period to allow the beneficiary to make demand in the event of non-performance of the obligations covered by the guarantee.

Retention Money Guarantees

• Contracts may allow the beneficiary to retain a proportion of the contract value once substantial completion of the contract has taken place and the beneficiary may be prepared to release this retention money to the applicant against the presentation of a guarantee.
• Duration of the guarantee depends on the underlying contract terms and may extend for a period after completion of the contract.

Payment/Trade Debt Guarantee

• Often used to cover the non-payment of a debt(s) arising under a transaction or over a period of time.
• Provides financial security to the beneficiary should the applicant fail to make payment for the goods or services supplied. Such guarantees will invariably run up to the final scheduled date of payment, plus a grace period to allow the beneficiary to make demand in the event of non-payment.

Court Guarantee

• Given to a party involved in legal proceedings, to secure the payment of costs should these be awarded against the applicant as part of the judgment.
• Normally valid until a final judgment has been made and will not quote a specific expiry date.

VAT Bonds/Duty Deferment Bonds

• Provided to HM Customs and Excise and allows the applicant to import goods from outside of the EU without the immediate payment of duty/tax, which is then settled on a monthly basis by Direct Debit.
• Liability under the guarantee is 200% of the face value and remains valid until HM Customs confirm to HSBC Bank that no liability is outstanding, following the giving of a notice termination.
• HM Customs provide their own paperwork for this type of guarantee.

Loan Note Guarantee

• Provided to secure the payment of loan notes or other commercial paper, in cases of company take overs/buyouts.
• Normally valid for a number of years, depending on the terms of the company sale agreement.

Facility Guarantee

• Enables an applicant to secure banking facilities for a subsidiary/associate company, or personal account, in other countries.

Civil Aviation Authority and Association of British Travel Agents Bonds

• Required by applicants in the travel industry to enable participation in the ATOL and ABTA schemes, which offer holiday protection to travellers.
• Valid for 18 months, normally renewable every year; to allow for an annual licence plus a six month grace period for claims if the licence is revoked or not renewed.
• Various guarantee formats are available from both authorities.