A guarantee means giving something as security. A Bank Guarantee is when a bank offers surety and guarantees for different business obligations on behalf of its customers within certain regulations. It is generally a promise made by the bank to any third person to undertake the payment risk on behalf of its customers.
Bank Guarantee is a binding commitment issued by a bank on behalf of a client at request. The client requests the bank to issue Bank Guarantee, once they have entered into a contract to buy goods/render services or project completion. A Bank Guarantee is a promise issued in favor of the supplier that they will meet all financial obligations; in case buyer defaults.
Bank Guarantee regularly encourages firms to do business with parties they could never find the opportunity to deal with. Suppliers will regularly do business with customers that have a Bank Guarantee because it mitigates the monetary risk. It assures the supplier that the monetary commitment will be met or paid within the date. Likewise, having a Bank Guarantee diminishes the uncertainity of not receiving proper and complete payment for the goods sold/services rendered. Bank Guarantee enables a business to develop effectively and it likewise builds dependability.