Published by – Goutam Kumar Jena on behalf of GNEXT MS OFFICE
Category - Finance & economics & Subcategory - Bank Guarantee
Summary - Bank Guarantee , Letter of Credit & Performance Bond
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BANK GUARANTEE
A Bank guarantee is a promise from a bank or other lending institution that the liabilities of a debtor will be met in the event that you fail to fulfill your contractual obligations.

A bank guarantee, like a letter of credit, guarantees a sum of money to a beneficiary. Unlike a letter of credit, the sum is only paid if the opposing party does not fulfill the stipulated obligations under the contract. This can be used to essentially insure a buyer or seller from loss or damage due to nonperformance by the other party in a contract.

LETTER OF CREDIT
On the other hand, A letter of credit is an obligation taken on by a bank to make a payment once certain criteria are met. Once these terms are completed and confirmed, the bank will transfer the funds. The letter of credit ensures the payment will be made as long as the services are performed.

Difference between BG & LC -  A bank guarantee and a letter of credit are similar in many ways but they're two different things. Letters of credit ensure that a transaction proceeds as planned, while bank guarantees reduce the loss if the transaction doesn't go as planned.

PERFORMANCE BOND
A job requiring a payment and performance bond will usually require a bid bond, to bid the job.

When the job is awarded to the winning bid, a payment and performance bond will then be required as a security to the job completion. For example, a contractor may cause a performance bond to be issued in favor of a client for whom the contractor is constructing a building. If the contractor fails to construct the building according to the specifications laid out by the contract (most often due to the bankruptcy of the contractor), the client is guaranteed compensation for any monetary loss up to the amount of the performance bond.


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