A bank guarantee is a type of financial guarantee that can be provided by any lending institution like a bank. A bank guarantee ensures a lender’s word about a debtor’s liability. It ensures that even if the debtor fails to pay back, the bank will cover it.WHY YOU SHOULD RAISE FUNDS WITH A BANK GUARANTEE
Bank guarantees help small businesses by opening the windows to all kinds of new opportunities. It shows the world that a bank stands with a business to give them a guarantee, it develops credibility for small businesses.
The reason bank guarantees came into existence was because buyers had increased defaults. There was a lot of mistrust that was created. Bank guarantees make sure there was assurance that buyers won’t default to other sellers. Bank guarantees are a great way to bring down financial risks for any beneficiary to a substantially low level.
Bank guarantees don’t require a lot of documentation, just accurate information about the beneficiary and strong reasons to assure validity. The level and extent of documentation required is still dependent on the type of bank guarantee and the reason for getting it.
When a person raises a business loan from the bank, if not all, at least 10% of the raised amount is utilised for their personal use and 100% is not injected in business in the form of working capital. Therefore, the purposes for which loan is raised are not justified. The funds raised through bank guarantees always fully stay in working capital as the payment for raw materials is done to vendors.
Therefore, getting loans through bank guarantees is the safest and most credible way to get loans. really help with operations expansion, enhancing credibility, and have lesser financial risks.