Practically – every second person in Poland repaid at the end of June 2018 a liability in the form of a loan or a loan. The most numerous group were professionally active Poles, in the range of 35-44 years. One in four (25.55%) of them is repaid credit. At least this results from the data provided by the Credit Information Bureau . The sum of all liabilities is almost 29 million, the amount of over 608 billion of wit 1 ! This financial structure clearly highlights the fact that we have confidence in banks. How to strengthen them even more while running your own business? In such cases, the concept of a bank guarantee emerges – what is it and when is it worth using?
Bank guarantee – what is it?
According to the Banking Act of August 29, 1997, the bank guarantee covers a unilateral obligation of the bank-guarantor that after all the conditions for payment by the borrower (the beneficiary of the guarantee) have been met, he will perform a cash payment against it – directly or through the other bank. In practice, this means that when the debtor has problems with the timely repayment of installments – the institution will take over the payment of the benefit. However, in order for this to happen – the borrower must pay a commission to the bank that will settle the entire debt in case of financial problems. Its amount is usually 0.5-1.5 percent. sum incurred.
This is precisely defined in art. 81 of the Banking Law:
- The bank guarantee is a unilateral commitment by the bank-guarantor that after the authorized entity (beneficiary of the guarantee) has fulfilled certain payment conditions that can be confirmed by the documents specified in this assurance, which the beneficiary encloses to the payment request prepared in the indicated form, the bank will perform a cash payment on the beneficiary of the guarantee – directly or through another bank.
2. The granting and confirmation of the bank guarantee shall take place in writing under pain of nullity . 2 .
What is important – a bank guarantee is a contract in which only the bank can become the guarantor. Hence the name of the term. In turn, the beneficiary has the right to be practically anyone – both a natural person and an entrepreneur engaged in domestic and foreign trade.
Bank guarantee as a guarantee of mutual trust
However, most often – a bank guarantee is used when establishing cooperation with a new business partner. In this way, it secures various types of debts of a major investment character, requiring a large amount of finances. Therefore, it is impossible to omit the following advantages:
- The beneficiary of the guarantee quickly receives financial resources without having to conduct a court dispute,
- The financial stability of the bank guarantees the debtor obtaining cash – regardless of his financial condition, which may change during the contract,
- Thanks to the bank guarantee – the debtor guarantees the lender or the second entrepreneur that he is able to repay the loan or pay for the goods. It becomes more credible in the eyes of a business partner. Thus, he gains the chance to win in a tender or conclude favorable contracts,
- With the help of a guarantor in the form of a bank, the payer raises his creditworthiness.
Examples of the use of a bank guarantee
We live in a very dynamic society – we receive signals every day about the ongoing economic changes. We hear about redundancies, an increase in the unemployment rate or about payment bottlenecks. It is also loud about consumer bankruptcy – in 2018 alone it was announced by 1/5 more enterprises than it was in 2017 and three times more than in 2015. According to the BIK and BIG “InfoMonitor” research over 6.5 thousand people who went bankrupt last year had unpaid liabilities totaling PLN 732 million 3 !
It is no wonder that the guarantee guarantee has a wide range of applications. It can be used not only to regulate the amount of goods purchased or services provided, but also applies to financial transactions that will be carried out only in the future. Bank guarantees also apply in the situation of:
- Loan / loan repayment
- Down payment
- Regulate the amount for goods and services
- Payment of leasing installments
- Effective performance of a contract or contract
- Payment of customs duty or excise duty
- Lottery payments
- The so-called. good performance – that is, secures the execution of claims under the guarantee, payment of contractual penalties, where it can replace the guarantee deposit
Types of bank guarantee
Once we know in which cases a bank guarantee is used, it is worth stopping over its various types. Taking into account the formalities necessary to perform for the bank, we distinguish two types of guarantees:
– conditional banking guarantee – the bank pays the borrower funds only if it meets all the terms of the contract. Therefore, the creditor checks whether the monetary claim is in fact valid and the beneficiary has submitted all documents that can confirm it,
– unconditional bank guarantee – the bank pays the borrower the entire amount – without checking the validity of such a decision and not requiring submission of any supporting documents.
Importantly – all warranty obligations are conditional! Which means that the laws that bind them may or may not be enforced. Therefore, the payment transfer will take place only when the beneficiary reports to the bank demanding payment – it is not guaranteed by the guarantee itself! The warranty automatically expires later. It has a specific duration – and all the rights it contains can only be completed by the specified deadline.
How to get a bank guarantee?
Apparently – “not everything gold, what is shining” – so in the case of a bank guarantee there is no crystal clear side, free of defects. On closer acquaintance, there are certain risks associated with it, which mainly determine costs. In the case of this type of protection, we often have to reckon with:
- An additional fee resulting from the consideration of the application for a guarantee or its extension in the amount not less than 150 PLN,
- Additional cost for processing the order to provide a guarantee, extend the deadline or increase the amount, in the amount of approx. PLN 200,
- Payment in the range of PLN 500 or more, for issuing a promise of credit in the domestic trade,
- A commission for granting a guarantee, the amount of which depends on the contract concluded with the bank. Most often it is the percentage of the guarantee sum,
In addition, to ensure that the guarantee itself is indeed a good solution for the beneficiary – the bank will definitely scan the potential customer in terms of creditworthiness . It will also be necessary to meet other conditions, such as setting up an account or submitting a contract security, for example in the form of cash or mortgaged property. After positive verification and when the bank sees no obstacles, you can sign a bank guarantee only in writing! All methods of verbal guarantee – in the light of the law are invalid!
What should the warranty contract contain?
First of all, its content must be transparent and understandable for both parties to the contract. So that no sub-point raises any doubts as to its interpretation. Therefore, it must include:
- Guarantee type – conditional or unconditional
- Duration of the contract
- The maximum amount that the bank undertakes to pay to the debtor
- The specific claim to be covered by the guarantee
- The deadline for the payment of the guarantee
In this case – many people are often equated these two concepts as one and the same financial product. Indeed – both in the guarantee and in the guarantee, the beneficiary is protected against insolvency. And the similarities end there. The key difference between them is the hedging entity – in a bank guarantee, as the name suggests, it is a bank, in turn, it can be a natural person. In addition, the bank guarantee:
- It is payable – the guarantee is a completely free service,
- It is used for investments involving high amounts – in turn, the surety may be a small liability,
- It is, so-called abstract activity, which means that the amount of the guarantee does not depend on the amount of the guaranteed liability – while the guarantee is an accessory activity always closely related to the amount of debt incurred 5 !
Bank guarantee – to take or not to take?
A bank guarantee is an increasingly willingly used financial instrument – especially among entrepreneurs who strive to secure their interests. What’s more – sometimes you get the impression that this product is increasingly supplanting other ways to protect your business.
No wonder – firstly – guarantees the creditor’s security in the event of the debtor’s insolvency, and secondly – increases the credibility of the beneficiary in the eyes of the contractor. And thirdly – it does not require the involvement of own funds, thanks to which the company’s financial liquidity is maintained. Therefore, such a way of financing should have in mind – small and medium enterprises that think about non-standard solutions and the development of their activities.