A guarantee may be specific or continuing. When the guarantee is specific, the guarantor is answerable for a particular loan only. In case the guarantee is continuing, the guarantor shall promise to pay whole or part of transactions carried out by the debtor.
1. Principal creditor
2. Principal debtor.
2.Financial guarantee. These are guarantees given by the bank to financial institutions (e.g. IDBP) and companies (the creditors or beneficiary) undertaking to pay the debts of its customer(the principal debtors) in the event of the default by the customer.
3.Tender guarantee or bid bonds: These are issued by the bank to avoid the deposit of the earnest money by its customers when they tender for contract. The amount is usually 1% to 20% of the contract value and the duration is for very short period until the bids are opened and the contract awarded. Once the bank issues the bid bond, it is usually committed to supporting the project by issuing further guarantees such as performance bonds etc.
4.Performance guarantee/performance bond: These are issued by a bank on behalf of its customer who has entered into a contract to supply goods or perform other services and the guarantee compensation in term of money in the event of non performance of such contract. It is usually for 5% to 10% of the value of the contract and would remain in force throughout the period of the contract at a constant amount.
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