What is and how a bank guarantee works

It is increasingly common to observe the figure of the bank guarantee in certain contracts; and it is that if before this type of endorsements were recurring only at times, as in a loan, it is now also visible in many rental contracts, mainly due to the problems of defaults in the global economic crisis . For this reason it is very important to know what a bank guarantee is and how it works .

What is a bank guarantee?

It is a bank guarantee that ensures compliance with a certain economic obligation. We can say that it works as an insurance, because if the person you endorse does not respond economically, the guarantor must make good on his financial obligations .

Purpose of the bank guarantee

There are several purposes for this type of endorsement. On the one hand, the guarantee of a loan, which otherwise could not be granted for lack of goods or money with which to respond on the part of the endorsed. It is also used to guarantee companies against third parties . In addition, as we have indicated at the beginning, these guarantees are becoming more frequent in rental contracts.

Application for bank guarantee

The client and payer of the guarantee will have to be responsible for having confirmed a line of foreign trade risk that will be used for the amount of the guarantee. Afterwards, the client will have to focus on important issues such as the duration of the guarantee, the maximum amount to be paid, the payment requirements, obligations subject to the guarantee or the details of the payer.

Delivery of the endorsement to the client

After these steps and based on the established conditions, the bank will issue the guarantee or guarantee. Subsequently, the bank will provide the guarantee to the beneficiary, always with the agreed conditions.

Bank Commissions

In the case of the guarantor bank, it will take a part in the operation. The entity will charge the bank commission for formalizing the contract and maintaining the guarantee. The amount you will be charged is collected at the Bank of Spain. Thus, they will have commission per study, which is a percentage of the amount requested that has a minimum per operation. In addition, it will also charge opening commission, on the amount of the guarantee, as well as the risk commission, an extra on the amount but also based on factors such as the term, type and risk of the guarantee.