What is a bank guarantee for?
First, the bank guarantee allows enterprises to minimize their own risks. If one of the counterparties has not fulfilled its obligations to the other party to the transaction, the bank that issued the guarantee to it will have to pay off the debts of the unreliable counterparty.
Secondly, the bank guarantee takes a company that has received it to a new level when participating in tenders and competitions, because the cost of such a service is a certain percentage of the amount of obligations and regardless of whether the bank will have to meet its customer’s obligations or not, it must be transferred to the bank account. This means the following: a client who has paid for the cost of bank services for the provision of a guarantee is ready to bear the costs. In addition, before the issuance of a bank guarantee, the economic security service of the bank carefully checks the activity of a potential client, and if he has undergone a similar test, we can talk about the seriousness of the company.
Thirdly, the cost of bank services for the provision of a bank guarantee is substantially lower than, for example, the maintenance of a conventional commercial loan, which allows you to channel funds to secure your obligations to the counterparty. As an alternative to a bank guarantee, of course, you can use the services of insurance companies that provide liability insurance for non-performance of obligations to a third party. The cost of such an insurance contract is lower than a bank guarantee, but insurers reserve the right to refuse payment for many reasons.
Fourth, a bank guarantee obtained from a reliable and well-known bank allows the company to work with foreign partners, because the bank, its business reputation and financial position will be the guarantor of the fulfillment of obligations of the Russian company.
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