5 differences between technical and financial guarantee

Guarantees are essential when requesting a loan or submitting an offer for a project, as they are a guarantee that an entity will respond for the obligations you contract. Obtaining an endorsement also provides more credibility to your company and improves its image with potential clients, which increases the chances of accessing larger projects. To broaden the horizon of your business, you can use two  types of guarantees : the technical guarantee or the economic guarantee, also known as financial guarantee. 

What is the technical guarantee?

The main objective of the technical guarantee is to guarantee the ability of the SME or the self-employed to comply with the contractual obligations that it has contracted . It is generally requested to participate in public tenders and auctions, as well as to import merchandise on a temporary basis, the execution of works and supply contracts.

The entity that endorses you will respond to your client for the breach of non-economic obligations . In a work, for example, it will cover possible deviations in terms of time, quality and cost. If you do not finish on time or the final quality is not satisfactory, the client for whom you work has the right to execute the guarantee and receive compensation for the damages caused.

This does not mean that the guarantor entity will assume your benefits and will be in charge of completing the work or solving quality problems, but that it will financially compensate your client according to the damage caused and the conditions stipulated in the guarantee contract .

What is the financial guarantee?

Financial guarantees focus on guaranteeing operations in which it is necessary to pay a certain amount within a specific period of time , covering the commitments and payment obligations that the SME or self-employed person contracts with another person or company. Financial guarantees are divided, in turn, into two categories:

1. Commercial guarantee

The entity guarantees the payment of the sums derived from operations of a commercial nature , such as: the sale of goods, the splitting of payments or payments on account. In some cases, rolling payments may be guaranteed, such as those made when supplies are delivered periodically.

The commercial guarantee is usually used in purchase and sale operations and it is usual to attach it to the contract . In this case, the guarantor entity does assume your obligations, since they are of an economic nature. In fact, commercial guarantees are usually of a joint nature, which means that the guarantor entity will respond for all your obligations.

2.     Financial guarantee

The guarantor entity guarantees the payment of the loan or credit that you have contracted with another financial entity . This endorsement is usually necessary when you apply for a loan or credit, since this way the bank ensures that you will receive the payment.

By providing greater coverage to banks reducing the risk to which they are exposed, financial guarantees tend to improve interest rates and repayment terms . In addition, you will only pay for the study expenses of the financing operation and the commission for the acceptance of the guarantee, and interest is not applied, so it is usually a cheaper and more convenient option than guaranteeing with personal assets.

The differences between technical and financial guarantee

The main difference between the technical and economic guarantee is that, while the first guarantees the fulfillment of your contractual obligations, the second guarantees the commercial or financial commitments that you acquire . For this reason, technical guarantees are usually used for presentations to contests or tenders for works contracts, while economic guarantees focus on guaranteeing operations that demand the payment of an amount of money, either to suppliers or banks.

Another of the main differences between the technical and economic guarantee refers to its financial implications. With a technical guarantee, you avoid the immobilization of the capital that is usually used for the cash constitution of the bonds for the duration of the contract. Therefore, you will have more freedom to dispose of your financial resources. The technical guarantee does not require a pledge of funds by the company, while banks may ask you to immobilize a large part of the requested guarantee to grant you the financial guarantee.

Another important difference is that the technical guarantee is not considered a financial product , according to the Bank of Spain . By not going through the banking system, it will not compute in the CIRBE, the registry where the obligations contracted with financial entities are noted. Thus, you can keep the risk limits with credit institutions free, so that your credit capacity is not affected, which will allow you to use these bank resources to finance other projects and keep your business growing.

Finally, remember that, if you need a technical or financial guarantee, you can order it online, through Con Aval Sí . Platform that supports the  financing of entrepreneurs , SMEs and freelancers so that they can develop their professional projects.


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