The Bank Guarantee (BG) means a lending institution ensures that the liabilities of a debtor will be met. In other words, a BG is a collateral facility which can be used for a credit line and both for recourse or non-recourse loan. It can be monetized as well and used to go on private trade platform.
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 drawn down a loan.
Banks tipically use ‘direct’ guarantees, issued directly to the beneficiary. Direct guarantees apply when the bank’s security does not rely on the existence, validity and enforceability of the main obligation.
Individuals often choose direct guarantees for international and cross-border transactions, which can be more easily adapted to foreign legal systems and practices since they don’t have form requirements.