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Required documents

ABOUT Bank Guarantee

Bank Guarantee is a Non Fund based limit which minimizes the risk involved in commercial contracts. Here the Bank agrees to become a guarantor and commits itself to pay the agreed amount in case of non-performance of some action/performance of the customer. A bank guarantee enables the customer to expand its activity by providing aid in purchase of goods, equipment and so on.

The guarantee is based on the application made by 'applicant' in favour of a 'Beneficiary' for a stipulated amount. The 'issuing bank' will pay the guarantee amount to the 'beneficiary' upon receipt of the 'claim' from the applicant. In case of default made by the Seller in delivery of the goods or in completion of the terms of agreement, the bank guarantee may be cancelled by the applicant. Thus a bank guarantee discharges the liability of a third person in case of default made by its applicant. Track record of customers and their financial position are the guiding factors in deciding the Guarantee limit, security and margin.


Any individual or sovereign entity may apply for Bank Guarantee.

Required Documents

The documents needed vary from case to case. Let FINMART understand your needs and assist you in documents requirement.


Following are some points of difference between a bank guarantee and a usual guarantee:

  • An ordinary guarantee is a tri-partite (3 parties) agreement involving the surety, the debtor and the creditor. But a bank guarantee is a contract involving two parties i.e. the bank and the beneficiary.
  • In an ordinary guarantee, the contract between the surety and the creditor arises as a subsidiary to the contract between the creditor and the principal debtor. The bank guarantee is independent of the main contract.
  • In an ordinary guarantee, the inter se disputes between the debtor and the creditor have a material effect upon the surety's liability. However, the bank guarantee is independent of the disputes, arising ex contractu (arising out of the contract).
  • An ordinary guarantee does not have any time limit before which the debt has to be claimed. Bank guarantees generally have a specific time within which they are functional.
  • A bank guarantee and a letter of credit are similar in many ways but they're two different things. Letters of credit ensure that a transaction proceeds as planned, while bank guarantees reduce the loss if the transaction doesn't go as planned.
  • A letter of credit is an obligation taken on by a bank to make a payment once certain criteria are met. Once these terms are completed and confirmed, the bank will transfer the funds. This ensures the payment will be made as long as the services are performed.
  • A bank guarantee on the other hand assures a sum of money to a beneficiary if the opposing party does not fulfill the stipulated obligations under the contract. This can be used to essentially insure a buyer or seller from loss or damage due to non-performance by the other party in a contract.
  • For example a letter of credit could be used in the delivery of goods or services. The seller may request that the buyer obtain a letter of credit before the transaction occurs. The buyer would purchase this letter of credit from a bank and forward it to the seller's bankensuring correct and timely payment.
  • A bank guarantee might be used when a buyer obtains goods from a seller then runs into cash flow difficulties and can't pay the seller. The bank guarantee would pay an agreed-upon sum to the seller. Similarly, if the supplier was unable to provide the goods, the bank would then pay the purchaser the agreed-upon sum. Essentially, the bank guarantee acts as a safety measure for the opposing party in the transaction.
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