What is a bank guarantee and how can I get it

What is a bank guarantee and how can I get it

A bank guarantee is a guarantee that a bank undertakes to respond in compliance with a liability before a third party. 

A bank guarantee is a guarantee operation by which the guarantor (bank) undertakes to respond to the fulfillment of an obligation of the guarantee (usually client) before a third party (beneficiary), in the event that the guarantee does not. Guaranteed obligations often include the payment of a certain amount of money, although securities may be issued in the guarantee of other obligations (good end of a work, provision of material, participation in tenders and tenders).

For the bank, a guarantee is a risk, such as a loan. The difference with this is that the guarantee does not imply an immediate payment of money on the part of the bank in favor of the beneficiary of the guarantee, but if it can be assumed in the future if said beneficiary executes it, that is to say, it demands the fulfillment. At that moment, the bank, who has complied with the guarantee of the guarantee, will require the client to reimburse that amount.

Therefore, the bank in these transactions undertakes to comply, if the client (endorsed) does not do so, the obligation to contract against the beneficiary. The payment of the obligation that is guaranteed may or may not be of a financial nature.

For the client ( backed up ), having an aval document allows you to comply with the requirements of the beneficiary, derived from a business relationship (contract of sale of goods, execution or bidding of works, etc.).

For the delivery of an aval on the part of the bank, it is necessary for the client (guaranteed) to formalize a bank guarantee coverage policy before a notary, or a coverage policy for the limitation of bank guarantees if several guarantees are formalized, in which they are regulated the relationships between the bank and the guarantee derived from the bank guarantee provided (payment of the commission, interest, and expenses stipulated, reimbursement of the amounts that the bank paid as a result of the guarantee, etc.).

Types of guarantees

Types of guarantees

  • Financial : All those guarantees in which the bank undertakes to pay a certain amount in case the guarantee is not made.
  • Technicians: Those guarantees in which the bank responds in case of non-fulfillment of commitments other than a payment obligation, which is endorsed. Generally, these obligations are before public bodies or before administrations, but it can also be before other third parties, and the bank responds to the non-fulfillment of the commitments that the guarantee had against those third parties, contracted for reasons such as participation in tenders or tenders, executions of works or supplies, good operation of machinery sold, in cases of administrative resources, etc.

In return for the risk assumed, the bank receives certain commissions, based on the term, the type and the risk of the guarantee. The guides can be defined or indefinite. The duration is one of the most important aspects of the guarantee since it delimits the temporary validity of the guarantee granted by the bank.

The most frequent guarantees are the bank guarantees required in the case of housing leases. In these cases, the lessor asks the lessee a guarantee corresponding to a specific number of monthly payments, to ensure payment in the event that the lessee does not.

There is also the preamble figure for which the bank undertakes to grant a definitive guarantee to the person or entity that requests it and in favor of the beneficiary of the guarantee, provided that the conditions established in said commitment are fulfilled, which will not, under any circumstances, from the bank’s will.