What Is The Bank Guarantee (BG)?

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• A bank guarantee (BG) is a document through which
  a bank acquires a commitment to meet a customer's
  payment obligation, as long as the latter fails
  to comply with it. Basically, this client's bank
  becomes his guarantor for that specific operation
  and will be in charge of making the payment if
  his client does not fulfill his obligation within
  the established term.Three people participate
  in this operation the bank or guarantor, in
  charge of supporting the operation, being the
  guarantor of bank guarantee (BG), the bank's
  client, the one who has contracted the debt, and
  the beneficiary of the same, that is, the person
  or entity that will receive the amount of the
  customer's payment obligation.

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• How bank guarantee (BG) works?Now that we have
  seen what the bank guarantee is and what types
  are currently applied, it is normal for us to ask
  ourselves what is the benefit that entities can
  obtain by acting as guarantors in the operations
  of their clients with stand by letter of credit.
  After all, when a person or company signs as
  guarantor, they always run the risk of having to
  face a payment obligation that they have not
  contracted on their own, which can be a problem
  and generate conflicts between the entity and the
  client.
• For this reason, banks receive commissions for
  acting as guarantors of their clients, something
  completely reasonable given the risk that these
  companies assume when signing a bank guarantee by
  providing a stand by letter of credit. These
  types of commissions are varied and depend on
  different factors the duration of the contract,
  the nature of the guarantee (defined or
  indefinite), the term, the risk assumed, and the
  interest rate.

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• In the real estate market, it is common for
  owners to request the stand by letter of credit
  of at least several of the months of the mortgage
  from their tenants. This happens to the landlord
  because he will never be totally sure that the
  tenant pays all the installments in their
  installments, and the guarantee serves as a
  guarantee in cases of non-payment since the bank
  will respond to the default of the tenants.In
  most cases, the guarantor of a loan is usually a
  relative, friend, or partner of the debtor, who
  undertakes to respond to the payment in the event
  that the guarantor defaults on his obligations.
  However, in other scenarios such as mortgage
  rentals, banks also act as guarantors for their
  clients, signing a document called a bank
  guarantee (BG).

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