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Differences Between A Bank Guarantee And Letter Of Credit

09.07.2014 · Posted in Leases & Leasing

The two differ although they may sound similar. A bank guarantee in city Dubai refers to a written commitment which is usually issued by a bank when requested by one of various parties in a transaction. The bank therefore promises to pay a beneficiary a sum of money that is specified for cases that are also specified in the agreement. The lender assures payment of the cash. This is usually in the case that the terms defined in the agreement are not met.

Bank guarantees are also found out of trade. The government authorities as well use them when they bid land and even in undertaking certain projects. For example, one could want a bid for road construction project and is required to provide the guarantee to the authorities.

There are various types of bank guarantees in city Dubai. One is advancement payment guarantee. This is a case where the lending institution undertakes to pay back the advanced payment to a buyer if the seller does not perform the specified task as per the contract. The other one is performance bond. This is where the lender guarantees to pay a beneficiary if the service provider does not perform a contract in its manner.

Bid bond. This is where an organizer of a contract is to recover his or her incurred expenses when organizing a tendering process only for the winner to fail to take up the tender. As a result another tender has to be renounced. There is no assurance that does not have duration or a specified reason. It is terminated if the reason for which it was made is met or the time provided comes to an end.

Guarantees by lenders help in reducing risks involved in cases where transactions do not fulfill the agreed specifications. Contrary to that, letters of credit will ensure that a transaction goes well and as planned. It is the obligation of a lender to make payment when the agreed terms are executed. It transfers funds when they are met and confirmation is made. This ensures payment of the money.

The two are common in the sense that they both guarantee a specified sum of money to beneficiaries. The difference is that guarantees by banks are only paid when an opposing party fails to perform as per the agreement. This will be used either by sellers or buyers to insure against loss or damage as a result of nonperformance by the other party involved in a contract.

This bank is usable by a buyer in a case where he or she receives goods from a seller but cannot pay because his or her financial status does not allow. It can be used at the same time by a seller who is unable to deliver goods to a buyer as agreed upon. The purchaser will receive the specified amount of cash from the lender. Guarantees by lenders therefore are used as safety measures for any party in a transaction.

Finally, the two transactions stand out to be very significant. People are able to trade with partners who come from every part of the world. They are options that will help one in reducing any risks that may be involved. Mutual trust between parties is at the same built.

Know whom to contact for your bank guarantee letter by visiting the related source . A credible list of financial institutions will be found online when you log in at http://www.bwtradefinance.com.

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