The Bank Guarantee (BG) means a Bank/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 to improve up the project financing structure bringing it to a bankability stage, to drawn down a loan or simply to trigger a credit line from the Bank or for import-export trade, to guarantee the supplier in commercial transaction.
For each one of the above examples a Bank Guarantee represents an excellent solution with the effect to reduce the risks and the costs for the Parties, indeed if the debtor fails to settle the debt, the bank will cover it.
Banks typically issue ‘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.