A bank guarantee is a promise from a bank to cover a financial loss if a business customer fails to meet an obligation under a contract, giving the other party assurance that they will be paid or compensated.
General information, not financial, legal, or tax advice. Verify current terms and eligibility with the provider before applying.
How a bank guarantee works
A bank guarantee typically involves three parties: the applicant, who is the bank customer with an obligation; the beneficiary, who is to be paid or protected; and the issuing bank, which acts as guarantor. The bank promises that if the applicant fails to meet the agreed obligation, the bank will pay the beneficiary up to the guaranteed amount. The bank charges the applicant a fee for this, often a small fraction of the transaction value, and may require security. The guarantee reduces the beneficiary risk and supports deals that might otherwise be too risky, current as of 1 March 2026.
Types of bank guarantee
Bank guarantees are commonly grouped into financial and performance guarantees. A financial guarantee assures the beneficiary that a payment obligation will be met, with the bank covering the amount if the applicant does not pay. A performance guarantee assures the beneficiary that the applicant will carry out a contractual duty, such as delivering goods or completing a project, and provides compensation if the applicant does not. Bank guarantees are widely used in domestic contracts and in international trade, where they help parties in different countries transact with greater confidence.
Why it matters to a business
For a business, a bank guarantee can unlock contracts by giving counterparties confidence that obligations will be honored. It can support tenders, supplier relationships, and cross border trade. The cost is the bank fee and any security required, and the guarantee depends on the bank assessing the applicant. Fees, eligibility, and the exact terms of a guarantee change and vary by bank and by country, so confirm current details with the provider before relying on one.
Frequently asked questions
What is a bank guarantee?
What are the main types of bank guarantee?
How much does a bank guarantee cost?
Who are the parties to a bank guarantee?
Definitions, fees, features, and eligibility change and vary by region. This page was last reviewed on 1 March 2026. Confirm current terms with the provider before applying.