Bank Guarantee (BG)
Bank Guarantee (MT 760) is an irrevocable commitment, which is issued by a bank on behalf of its client who has concluded a contract to buy goods from a seller and promised to meet all financial obligations to the seller in case of default. In other words, a Bank Guarantee is a commitment of a bank on behalf of its client.
A BG often helps companies to conduct transactions with parties they usually would never have the chance to deal with. Many suppliers often prefer to do business with clients, which have a BG because it removes the risk of non-payment for the goods they sell.
BGs can be issued for many purposes, for example, for credit enhancement of institutions that issue industrial development revenue bonds and commercial papers; to provide security for loans granted by third parties; to assure performance under construction or employment contracts; and to ensure the buyer fulfils financial obligations to its suppliers.