Bank Guarantees


Bank Guarantees Used For Financing Imports

Bank Guarantees are the perfect method of import financing, providing protection to both importers and exporters in cross-border trade. Bank Guarantees offer an absolute guarantee of performance and payment to the exporter, who then bears no further payment default risk, which positions the importer to negotiate more favorable deal terms.

Bank Guarantees For Imports Overview

Bank Guarantees just may be the perfect method of financing import trade. They offer numerous benefits, protecting both importers and exporters in cross-border trade transactions. Chief among the benefits of using bank guarantees is that they grant an absolute guarantee of performance and payment to the exporter in international trade deals.

With a bank guarantee in a cross-border trade transaction, the exporter no longer bears any payment default risk. With no risk of default and the exporter feeling much more secure with the transaction, an importer is in a much better position to negotiate favorable deal terms.

» Bank Guarantees provide comfort to exporters who get an absolute guarantee of payment
» Importer almost certainly gains the ability to negotiate favorable trade terms
» Bank Guarantees give small businesses immediate acceptance in global trade deals
» They are universally accepted, giving importers the leverage to buy anywhere in the world
» They eliminate payment default risk which gives importers and exporters flexibility in negotiating terms

Bank Guarantees

Although a Bank Guarantee Seems very similar to a letter of credit, and there are similarities, they are very different instruments which are used for very different purposes. A letter of credit is used in trade finance to ensure that a transaction proceeds as planned. Bank Guarantees are used to mitigate losses if a transaction doesn’t go as planned.

A letter of credit is an obligation by a bank to make a payment once certain contractual criteria are met. Once the required terms are completed and confirmed, the bank will transfer the funds. The clear purpose is to ensure payment will be made as long as the services are performed.

Similarly, a Bank Guarantee is a financial instrument issued by a bank that guarantees that a stipulated sum will be paid to a beneficiary. However, unlike a letter of credit, the sum is only paid if the opposing party in the subject transaction does not fulfill the stipulated obligations under the contract. Thus, a Bank Guarantee essentially serves to ensure a buyer or seller against losses or damage due to nonperformance of the other party to the transaction.

Using Bank Guarantees For Imports

Bank Guarantees might be used when a buyer obtains goods from a seller but is then unable to pay the seller as agreed. The Bank Guarantee would pay the seller in the transaction a contractually agreed upon amount.

Similarly, if a seller was unable to deliver the goods according to the terms of a contract, a BG would obligate the bank to pay the purchaser the contractually agreed-upon amount. Essentially, Bank Guarantees are a safety mechanism for the opposing party in the transaction.

Bank Guarantees are often used in trade financing when buyers and sellers are purchasing and selling goods to and from overseas customers with whom they have no established relationship, in which case a BG is designed to reduce the risk which is borne by each party to a transaction.

Benefits Of Using Bank Guarantees For Imports

Seffex Capital provides world-class advisory services to assist clients in the deal structuring of every transaction undertaken. This includes Bank Guarantee advisory support to structure and negotiate the terms of Bank Guarantees. See Advisory Services.

  • Bank Guarantees give small businesses the ability to reassure the opposing parties to a contract that they have the ability to pay for and finance projects that would otherwise seem beyond their capacity
  • Bank Guarantees provide financial credibility and creditworthiness backed by a bank
  • Bank Guarantees can be used in virtually every market around the globe and in virtually every business sector
  • Bank Guarantees give the parties to a transaction a great deal of flexibility in negotiating contract terms over geography and currency

Trade Finance Learning Center

With more than 80% of the world’s trade depending on trade finance it is an essential segment of the financial services sector. It is also one of the least understood of the financial services. One of the things that undermine people’s understanding of trade finance is the absence of a single vocabulary. Do a search for the definition of import financing, for instance, and the top 20 results will provide 20 different definitions. We are creating a learning center with content that will help improve understanding of trade finance and its various component segments. Each of the below tabs provides the factual information you need to make good business decisions, beginning with important trade finance definitions.

Trade Finance Definition

The definition of Trade finance is the financing of international trade for the primary purpose of reducing risks involved in cross-border trade transactions which would otherwise be born by importers and exporters. Trade finance professionals use a range of financing methods and tools to facilitate the payment for goods to exporters, who require payment for the goods and services they sell from importers, who insist on receiving the right merchandise and is in good condition. Trade financiers provide the platform and financial infrastructure to minimize risk for importers and exporters and keep the pump primed on $18 trillion per year in global trade.

Import Finance Definition

Import financing is a segment of trade finance that exclusively provides financing for imports. Import financing includes a variety of financial products and services that have in common the similar purpose or objective of providing the financing that is needed to purchase and import goods from another country. Examples of types of import financing include import letters of credit, import bank guarantees, bank instrument monetization, open accounts and consignment purchases.

Export Finance Definition

Export financing is a segment of trade finance that exclusively provides financing for exports. Export financing includes a variety of financial products and services that have in common the similar purpose or objective of providing the financing that is needed to produce and ship export transactions. Examples of types of export financing include forfaiting, accounts receivable factoring, open accounts, consignment purchases and export letters of credit.

Seffex Capital offer a range of very competitive trade finance options to fund imports, exports and commodities along with unparalleled underwriting expertise and unsurpassed deal structuring advisory services.


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