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Bank Guarantee in the UAE

Bank Guarantee in UAE

As the name suggests, Bank Guarantee is the guarantee provided by a bank or financial institution to the creditor for the borrower. This is a contract between three parties – Bank, Borrower and Lender. When a lender provides a loan or products to a borrower, the bank or financial institution gives surety to the lender that, if the borrower fails to pay the debt, the bank will bear the loss.  

Process of Bank Guarantee 

A bank guarantee agreement usually takes place between large and small scale businesses. The large scale companies request for a bank guarantee while collaborating with a small scale business. The bank guarantee usually takes place in infrastructure, real estate companies. 

For example, If a restaurant owner needs some kitchen equipment, then the equipment seller requests for a bank guarantee from the restaurant owner before shipping the goods as they don’t want to risk their business in case of any loss. The restaurant owner will visit the bank and request for a bank guarantee. Banks don’t provide such assurance without background verification. They check the financial stability, creditworthiness along with other eligibility criteria before providing the guarantee. 

Once the verification is completed after reviewing the documents submitted by the borrower (restaurant owner in our case), the bank provides the guarantee which can be used by the seller.

Check: Why your business loan was rejected and what to do next

Types of Bank Guarantee 

There are different types of bank guarantees depending upon the security the borrower requests for. 

Also, check: Mistakes you should avoid while applying for a Business Loan

How to get Bank Guarantee in UAE? 

There are several banks in the UAE that support businesses to run smoothly in terms of finances by providing a bank guarantee. Provides different types of bank guarantee depending upon the business requirement 

Documents required for Bank Guarantee in the UAE 

Letter of Credit vs Bank Guarantee 

There is always a big misconception between the Letter of Credit and Bank Guarantee. More or less the working of the Letter of Credit and Bank Guarantee is the same but these are two different services provided by the banks or financial institutions. 

Bank guarantee is a surety provided by the banks to clear the loan in case of the borrower defaults. Letter of Credit is the credit provided by the bank to clear the loan without waiting for the borrower to go default. 

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