WHAT IS A GUARANTEE?
A Guarantee is a promise of payment from the Guarantor to the Beneficiary that the Guarantor will pay the beneficiary when the beneficiary submits certain documents or makes a specific demand to the Guarantor in a certain manner time or place.
Guarantees provide comfort to the beneficiary; in case the applicant fails to meet his obligations (either financially or by performance) as per the contract made between the applicant and the beneficiary, the beneficiary will have the guarantee to turn to for payment..
Having a guarantee issued in support of a client’s transaction can help the client grow and expand their business by postponing current payments for goods and/or services to a later date, provide comfort to buyers, allow clients to bid on transaction, without requiring that STF’s clients tie up their available cash.
PERFORMANCE BOND
A performance bond, or contract bond is utilized in the real estate industry to make sure a contractor completes a designated project. A performance bond is issued by a bank, or a financial institution in favor of a beneficiary by order of an applicant, against the applicant’s failure to meet its obligations as per an underlying contract.
A performance bond often covers 100% of the contract value and can replace a bid bond when the applicant has been awarded a contract. If effect, applicants use performance bonds to comfort suppliers who are concerned with the prospect that the applicant might become insolvent or otherwise unable to fulfill his contractual obligations. In case of insolvency of the applicant, the beneficiary receives compensation that should ease financial stresses or other damages caused by the contractor.
ADVANCE PAYMENT GUARANTEE
An advance payment guarantee, or advanced payment bond is an agreement where an issuer undertakes responsibility to return an advanced payment to the buyer, should the seller fail to meet his obligations.
In trading markets, is used to secure any claim by the buyer on the seller for refund. In case, if the seller fails to supply the goods as per their contract terms. As well as, secure buyer’s down payment on the contract price before supply of the goods.
Also not only allows the exporters / contractors to receive down payment as per the terms of their contract. But also covers the importers / developers in the event of a default during that tenure.
