International Trade & Banking Institute


Section IV - Guarantees

What is a Guarantee

Providing the conclusion of an important deal hinges on a guarantee that your company is able to perform or pay, you may need a Standby Letter of Credit or Bank Guarantee.

Companies that bid on large international contracts are often required to establish their financial integrity by means of bank guarantees. However, guarantees and standby letters of credit are also useful in a variety of business transactions where a client requests assurance of ability to meet financial obligations.


Bid Bonds or Tender Guarantees

To ensure that suppliers only submit serious offers, international public tenders often call for cash deposits or irrevocable guarantees for 2 to 10 percent of the contract amount. With a bid bond a company can establish credibility without tying up cash resources.


Performance Bonds or Guarantees

Successful bidders normally require a performance guarantee for 5 to 25 percent of the contract amount. To view sample wording of a performance bond, see How To Make Money Without Money, The Art of Transferable Letters of Credit and Assignments of Proceeds.


Advance Payment Guarantees

An advance payment guarantee assures that the beneficiary will be repaid the advanced funds if the applicant fails to meet contract specifications.


Guarantees for Common Business Transactions

Borrowing Money

When negotiating a loan or mortgage with a lender who requires security against non-payment, a guarantee will assure the lender of repayment as arranged.

Purchase or Lease Agreements

A guarantee assures a seller or lessor of the buyer's ability to honour the terms of agreements when purchasing goods, or acquiring or leasing property.

Utility Service Contracts

Guarantees can facilitate contracts with public utilities, gas companies, etc., which call for assurance to pay for services rendered.