Bank Guarantee: Definition, Types, Examples, Functions

In discussing letters of credit (L/C), we know that banks do not simply function as savings and lending facilities. The financial institution also launched a service aimed at convincing one party in a transaction that the other party will pay for sure. for the economy to run more smoothly

One type of service of this type of financial institution is bancassurance or bancassurance. What is a bank guarantee? And how does this service work? Check out the details below:

Definition of Bank Guarantee

bank guarantee (bank guarantee) is the collateral provided by the bank to the customer. In this case, the customer is also an entrepreneur who is buying or renting something. But they need a third-party guarantee to convince their business partners.

bank guarantee Issued in the form of a letter stating that the lending institution will guarantee the payment that the client is supposed to make. If the client fails to comply with the obligations to the business partner Therefore, customers will still get the products they need while business partners will still get the rights.

Bank guarantee mechanism

The bank guarantee service must be issued by a reputable institution. So that partners trust in the applicant and the requester can get the desired product without worry.

On the other hand, banks set various prerequisites. For the petitioner to reduce the risk of default on debt payment In this case, the applicant for this service must consist of: counter guarantee or guarantee or a minimum amount of collateral equal to a nominal value to be secured in the bank’s letter of guarantee.

counter guarantee in any form From cash, deposits, current accounts to other securities and assets The property pledged as collateral will be seized by the bank until an agreement is reached. bank guarantee finished.

besides that Banks also ask for quite difficult requirements for customers who want to apply for this loan. BTN Bank For example, not only various business legal documents, starting from TDP, SIUP, etc. are required, but applicants are also requested to submit a recent photograph of the directors and financial reports for the last two periods.

state bank It also requires financial statements to be audited by a public accounting firm that is a partner of the financial firm. and is a member of the Indonesian Institute of Accountants (IAI) registered with Bapepam.

The bank will review the documents you deposit before approving the bank guarantee you submit. Please note that in order to receive this service You also have to pay a fee.

However, the conditions and fees for applying for this service are definitely different for each bank. Please contact the relevant bank customer service for more details on this service.

Types of bank guarantees

The scope of bank guarantees is very wide. In general, here are the types of bank guarantees you should know about:

1. payment guarantee The bank guarantees the seller that the buyer or customer will pay according to the mechanism specified in the contract.
2. bid guarantee The bank guarantees that the client, in this case the bidder, will not withdraw his offer and will continue to carry out the transaction in accordance with the rules specified in the contract.
3. performance bond Performance Guarantee or Performance Guarantee is a warranty issued by a bank to guarantee that its customers which in this case acts as a contractor will complete the relevant project
4. Prepayment guarantee A down payment guarantee is a type of bank guarantee that aims to guarantee the repayment of DP previously paid by the buyer. If a customer of a financial institution, who is now acting as a seller, is unable to deliver the ordered goods and services
5. maintenance guarantee. The bank provides this guarantee to the purchaser or owner of the goods on behalf of the supplier or seller. The content is there to guarantee that the Supplier will continue to fulfill all of its contractual obligations. Even if he withdraws all the payment deposited by the buyer.

In addition to the above 5 types There are also many types of contractual guarantees that customers require, so if you are interested in using this service. Please contact the customer service of the relevant bank to find out which type of warranty is right for your needs.

Examples of bank guarantee transactions

For example, you run a coffee shop that requires Rp 300,000,000 to buy furniture. at a unique household furniture showroom in Yogyakarta. Because you and the showroom owner do not know each other. Therefore, it is not surprising if the showroom owner asks for a bank guarantee of payment. before they deliver the goods to your coffee shop.

You then request to issue services by depositing Rp. 300,000,000 of collateral to best bank. The bank and you sign a furniture purchase contract together. Because you are confident in the quality of the purchased product. The furniture showroom therefore sends various furniture. you want to go to a coffee shop On the specified date after the purchase of furniture is completed. The bank will return the collateral to you.

In addition to commercial banks The World Bank often provides this service. difference this time The relevant party is the government of a particular country. This guarantee from the world’s financial institutions is given to lenders stating that the governments of the countries involved will meet their obligations.

Bank guarantee function

The function of this service is to facilitate transactions. with a bank guarantee Your partners will be more confident about the validity of the transactions you make. with this guarantee Your affiliates will not suffer losses if you do not fulfill your contractual obligations on time for any unforeseen reason.

If you want to subscribe to this service Make sure you use a bank company that the potential partner deems legitimate. have an account with that company And, of course, the cost factor should be taken into account.

On the other hand, if you get bank guarantees from your trading partners. First check the authenticity of the documents from the issuing bank. Due to current technological developments There is a possibility that such important documents will be misappropriated.