BANK GURANTEE

In commercial transaction, bank guarantees are required as a security for due fulfillment of a contract by the obligor, in favour of the benificiary. The obligor's financial standing and credentials may be unknown to the beneficiary of a commercial contract and bank's guarantee on behalf of the obligor support for the transaction. These financial instruments are often used in trsde financing when suppliers or vendors are purchasing and selling goods to and from overseas customers with whom they don't have established business relationship. The instruments are designed to reduce the risk taken by each party.

A guarantee is a promise to answer for the debt, default or miscarriage of another, if that person fails to meet the obligation. Guarantees are given by banks. A bank guarantee enables the cuatomer to acquire goods, buy equipment or draw down loans, and thereby expand business activity. The quarantors incurs secondary liablity that is, the quaranter becomes liable to the bank is void, the guaranter will not be liable. Bank guarantees are given in the form of tender bonds, performance guarantees and repayment gurantees in relation to projects in the same country or another country which involves supply of goods o services or the performance of work. these gurantees are currently an important tools of international trade.

Bank gurantee is an undertaking by the bank at the request of a party, whereby the bank in the event of default by the principal in the fulfillment of his obligations has to make payment to the beneficiary within the limits of specified sum of money and within the specified period of time. So, bank guranteee are usually limited with respect to amount and time. As for as the time is concerned, usually a grace period is granted to the beneficiary to claim under the gurantee. This is basically given for the time taken by the beneficiary to present his claim. The bank issues the required gurantee on behalf of the obligor after making a proper assessment of his financial standing and ability to fulfull his part of the contract.