If you often deal with banks, you will no doubt have heard of the so-called “bank guarantee” at some point. At one time this type of contract was quite frequent, especially in the case of loans, while today it is used very often in several rental contracts, especially when faced with a non-payment. In this era of crisis, the bank guarantee is back in vogue. You just have to analyze this topic in detail. In this very useful and practical guide, we see together what is a bank guarantee and how it works. Enjoy the reading!
What is a bank guarantee?
The bank guarantee is a securitized guarantee by the Banking Institute, which guarantees compliance with a specific economic obligation. It could be defined as a sort of insurance, since, if the subject to whom it is endorsed does not pay the economic sum due, it will be up to the bank to take over its financial debts. There are different purposes for this type of guarantee: to guarantee a loan, which otherwise would not be successful due to lack of liquidity. It is also a type of arrangement that is frequently used in rental contracts.
This type of arrangement can be replaced by an equivalent formula that does not change its content. It should also not be forgotten that when the bank obligation has been satisfied, the endorser holds all the rights inherent in the bill under examination. It is then necessary to add up the compulsory expenses including interest. According to sentence no. 22186, the guarantor has always declared also a guarantor and must deposit the bill of exchange.
To request a bank guarantee, the customer will have to decide together with the bank some clauses such as the duration, the amount to be paid, the payment methods. This request must be accompanied by the complete data identifying it. Once the contractual conditions have been established, the bank issues the endorsement and transmits it to the beneficiary by applying commissions.
In the event that the banking institution definitively assumes the role of guarantor, will be entitled to receive a part of the operation in progress; this quota is established by the Bank of Italy and provides for the coverage of the banking commission until the conclusion of the contract. Pursuant to Article 37 of the Royal Decree of 14 December 1933, the endorser always has the same obligations as the counterparty.
The bank will open an investigation commission, given that an endorsement provides for a quota for the risk, calculated precisely according to the amount and type of operation that you wish to undertake. At the time of stipulation, the bank issues an information sheet called? Concession of endorsement? which contains two parts. The first part specifies all the bank information, while the second part of the form lists the characteristics and any typical risks, all the economic conditions agreed with the applicant and the main provisions of the law.
Sometimes the information sheet contains an additional part containing further conditions. This sheet is very important and must be considered a real document. Guarantee obligation must always be correlated with the signing of the contract always present on the front side of a credit instrument under examination. The subjects in question are obliged to affix their signature of traction and also of acceptance and issuance. This last point is very important and absolutely must not be ignored. It is important to remember that the guarantee always ceases if the securitized action is prescribed.
Purpose of the bank guarantee
There are several purposes for this type of endorsement. On the one hand, that of guaranteeing a loan, which otherwise could not be granted due to lack of assets or money with which to respond by the guaranteed. It is also used to endorse companies towards third parties. Furthermore, as explained at the beginning, these guarantees are becoming more and more frequent in rental contracts.
In the case of the guarantor bank, it will take part in the transaction. The institution will cover the bank commission to conclude the contract and maintain the endorsement. The quantity to be taken is recognized by the Bank of Italy. Therefore, they will have a survey fee, a percentage of the requested amount that has a minimum per trade. In addition, you will also receive an opening commission, based on the amount of the guarantee, as well as the risk commission, an extra charge on the amount but based on factors such as the term, type, and risk of the guarantee.