GAURANTEE

 BY SUSHMA GOWDA

INTRODUCTION

A personal guarantee is an individual’s legal promise to repay credit issued to a business for which they serve as an executive or partner. Providing a personal guarantee means that if the business becomes unable to repay debt then the individual is personally responsible. The personal guarantee provides an extra level of protection to credit issuers, who want to make sure they will be repaid.

 With a personal guarantee, an executive can pledge their own assets and agree to repay a debt from personal capital in the case of default. A personal guarantee gives a creditor a legal claim to the personal assets of the individual which can make credit more accessible for a business and also improve the terms which will be based on the profile of both the business and the individual in the underwriting process.

ILLUSTRATION:

A personal guarantee is a promise made by a person or an organization (the guarantor) to accept responsibility for some other party's debt (the debtor) if the debtor fails to pay it. In the case of a personal guarantee made by an individual on behalf of another, the person who makes the personal guarantee is usually referred to as a co-signer of a note for a loan. A guarantor can be any party, including an individual or another organization, with a credit history.

BANK GAURANTEE

A bank guarantee is a type of guarantee from a lending institution. The bank guarantee means a lending institution ensures that the liabilities of a debtor will be met. In other words, if the debtor fails to settle a debt, the bank will cover it. A bank guarantee enables the customer, or debtor, to acquire goods, buy equipment or draw down a loan.

FOR EXAMPLE:-

Company A is a relatively small construction company that needs 1Cr worth of equipment. The seller may request a guarantee of payment in order to feel more secure in producing/ shipping the goods. The Bank Guarantee eliminates the risk of payment-failure and encourages trade on a mass scale.

FACTS:-

A bank guarantee is when a lending institution promises to cover a loss if a borrower defaults on a loan, of which there are many examples.

Individuals often choose direct guarantees for international and cross-border transactions.

A bank guarantee enables the customer, or debtor, to acquire goods, buy equipment or draw down a loan.

ILLUSTRATION:-

• A payment guarantee assures a seller the purchase price is paid on a set date.
• An advance payment guarantee acts as collateral for reimbursing advance payment from the buyer if the seller does not supply the specified goods per the contract.
• A credit security bond serves as collateral for repaying a loan.
• A rental guarantee serves as collateral for rental agreement payments.
• A confirmed payment order is an irrevocable obligation where the bank pays the beneficiary a set amount on a given date on the client’s behalf.

CONCLUSION

To access a Guarantee, applicants must demonstrate creditworthiness to their bank. The bank would normally look at previous trading history, recent accounts, credit history, and liquidity. The bank would need to know how long the bank guarantee is required, the amount, currency, and beneficiary details. This is generally speaking of course, different guarantees will require different documentation