Do you have a house in mind or a project in mind but are having trouble securing the necessary funds? Taking out a loan from a bank is one of the best alternatives. But getting a loan is not easy. To make it easier for you to apply for a loan, there are a number of guarantee schemes in place, including the bank guarantee. But what is a bank guarantee?
What exactly is a bank guarantee?
According to the definition in the Civil Code, the bank guarantee is established so that the bank can substitute itself for the creditor if the latter is unable to fulfil its commitments. In other words, it refers to the irrevocable commitment made by a bank to pay a certain sum to a beneficiary if a third party is unable to perform the agreed service. It is a unilateral contract involving three parties: the originator, the bank and the beneficiary. The relationships between them are the basic contract (between the principal and the beneficiary), the guarantee contract (between the principal and the bank) and the unilateral contract (between the bank and the beneficiary). But in order to know who should adhere to the bank guarantee, it is necessary to understand how this type of guarantee works.
What are the various types of existing bank guarantees?
There are four types of bank guarantees: first demand guarantees, documentary guarantees, direct guarantees and indirect guarantees. For the first type, the beneficiary must send his request for payment before the deadline agreed in the guarantee. For the second type, they are payable on the basis of documents issued by third parties. In the case of the direct guarantee, it is marked by the direct issue of a guarantee in favour of the beneficiary by the principal’s bank. Finally, the indirect guarantee consists of the issuing of the guarantee – on the basis of the instructions of the ordering bank – by the second bank.
What are the benefits of a bank guarantee?
The main advantage of a bank guarantee is that it helps in applying for a loan. Indeed, it will be much easier to convince the lender of the soundness of the project. In addition, the implementation of a bank guarantee is much less expensive than a conventional mortgage because no notary’s visit is required. It also strengthens the credibility of the guaranteed company and provides a means of perpetuating commercial relations.