Bank Guarantee

A bank guarantee is when a bank offers surety on behalf of the applicant for different business obligations within certain regulations. The bank takes the payment risk on behalf of its applicant. Bank guarantee is offered on a contractual obligation for the applicant's business and personal transactions. It differs with a letter of credit as in a Bank Guarantee, the Bank becomes a co-signer on the purchase contract, also referred to as the ‘Guarantor’. In the case of BG, the bank assumes to make the payment only when the customer defaults to make a payment, whereas, in Line of Credit, it becomes a primary liability for a bank to pay and later collects the amount from the applicant.