Shop bank guarantee in simple terms is the commitment by your bank to shopay for the liability of a client in case their contractual obligations are not met. It’s a written surety for a third party, in this case, a customer to a business. There is no minimum limit. However, the maximum limit is determined on approval.
Bank guarantee can be use used by any entity whether a business entity or an individual. To apply for this guarantee, the acct holder contacts his bank and fills out forms where he identifies the reasons, amount of request, specific conditions, details of the beneficiary and the period.
Bank guarantees are used in the following ways,
• To cater for progress payments- these are suitable for large-scale equipment purchase and construction projects.
• Property leases — the bank guarantees the landlords from the tenant’s obligations
• Building contracts – a bank guarantee is used instead of performance bonds
• Payment for future accounts of suppliers or customers