Bank Guarantee — Types and business applications
A bank guarantee is an instrument by which the bank guarantees it will fulfill the client's obligation to a third party if the client fails to do so. Used in tenders, construction and international trade.
Definition
A bank guarantee is an instrument by which the bank guarantees it will fulfill the client's obligation to a third party if the client fails to do so. Used in tenders, construction and international trade.
Details
Types: tender (bid bond, 2-5% of value), performance bond (5-10%), advance payment guarantee, payment guarantee. Commission: typically 1-3% annually on guaranteed amount. Commission is tax-deductible.
Example
You bid on a 5M MKD tender. Tender guarantee of 3% = 150K MKD needed. Bank issues it for ~3K MKD commission (2% annual × 150K × 3 months).