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Bank Guarantees and Standby Documentary Credits
Bank Guarantees and Standby Documentary Credits provide the Beneficiary with access to a sum of money if the Principal (You) fails to fulfil contractual or other obligations in respect of an underlying transaction, contract or order.
Key features
- Provides security for either financial or non-financial obligations
- Is a separate transaction from the underlying commercial contract on which it may be based
- Payment of the sum agreed in the guarantee will be made in accordance with the terms of the guarantee, on presentation
- of a conforming demand from the Beneficiary, in spite of any issues arising from the underlying commercial contract
- The wording is a matter for negotiation between the Principal (You) and the Beneficiary (Your customer), subject to acceptability by HSBC. A selection of sample wording can be provided on Your request and we can provide information on using the ICC URDG458 (Uniform Rules for Demand Guarantees, Publication No.458, International Chamber of Commerce) and ICC ISP98 (International Standby Practices, Publication No.590, International Chamber of Commerce)
- We, as part of HSBC Group, will provide You with attractive terms on foreign guarantees enabled by our guarantee processing capability worldwide
- We issue guarantees through HSBC Group offices overseas and our extensive correspondent banking network
- Our specialised trade services team has wide experience and can provide You with valuable assistance to support Your business
Types of guarantees
Tender Guarantees/Bid Bonds
Often called for in support of contract tenders, particularly in international trade situations. Provides the beneficiary with a financial remedy if the applicant fails to fulfil any of the tender conditions. Normally submitted with the other documents called for in the invitation to tender and remain valid during the period of tender, plus a grace period to allow the beneficiary to make demand.
Performance Bonds
Most common form of guarantee, used in a variety of situations. Normally required at the time of commencement of the contract and will extend over the duration of the contract, plus a grace period to allow the beneficiary to make demand in the event of non-performance of the obligations covered by the guarantee.
Advance Payment Guarantees
Used where the applicant calls for the provision of a sum of money at an early stage of the contract. The beneficiary can recover the amount paid in advance, or a part thereof, if the applicant fails to fulfil their underlying contractual obligations. May provide for pro rata reductions to the guarantee amount on presentation of certain documents or on a specified date or dates. Duration will depend on the underlying contract, but many run up to the anticipated date of the final delivery, plus a grace period to allow the beneficiary to make demand in the event of non-performance of the obligations covered by the guarantee.
Retention Money Guarantees
Contracts may allow the beneficiary to retain a proportion of the contract value once substantial completion of the contract has taken place and the beneficiary may be prepared to release this retention money to the applicant against the presentation of a guarantee. Duration of the guarantee depends on the underlying contract terms and may extend for a period after completion of the contract.
Payment/Trade Debt Guarantee
Often used to cover the non-payment of a debt(s) arising under a transaction or over a period of time. Provides financial security to the beneficiary should the applicant fail to make payment for the goods or services supplied. Such guarantees will invariably run up to the final scheduled date of payment, plus a grace period to allow the beneficiary to make demand in the event of non-payment.
Facility Guarantee
Enables an applicant to secure banking facilities for a subsidiary/ associate company, or personal account, in other countries.
