Types of Bank Guarantee are explanied here.Bank guarantees are the right tool in every situation to prove your reliability. If borrower’s own promise is considered insufficient, the banker may demand another person’s guarantee who gives surety for the payment of loan. The person who gives surety is known as guarantor.
Types of Bank Guarantee You Must Know
Guarantee may be of two types:
- Specific Guarantee:
This kind of Guarantee is provided for the payment of a particular loan only.
- Continuing Guarantee:
In this kind of guarantee the guarantor promises to pay all the loans taken by the borrower from time to time.
PARTIES IN A GUARANTEE
There are three parties in a Guarantee.
Parties in a Guarantee
Debtor
Creditor
Guarantor
- Debtor:
He is the person who takes loan from the bank.
, 2. Creditor:
The bank that provides loan to the borrower and accepts guarantee.
/ 3. Guarantor:
The person or body who gives guarantee to lender for the repayment of loan.
Before Bank Guarantee Some Limitaions You Must Understand
- Financial Position:
The financial position of the guarantor must be examined well before accepting the guarantee. The guarantor should have a sound financial background.
- Amount of Loan:
The amount of loan must be reasonable in accordance with its objective. The banker should demand security other than guarantee in case of heavy amount. .
- Duration of Loan:
Loan against guarantee should be for short period, because guarantee is not favourite for long-term loans.
- Objective of Loan:
Before sanctioning the loan, its object should be carefully confirmed. Non-productive loans should be avoided.
- Source of Income:
The guarantor’s source of income will be helpful for the recovery of loan, so it must be verified.
- Character:
Good moral character of the guarantor is very important for the recovery of loans.
- Business Capability:
A successful businessman is more reliable guarantor as compared to dull or incompetent person.
- Alternative Source of Repayment:
If bank is issuing loan on personal guarantee then alternative source of repayment should also be taken into consideration in addition to business capability due to chances of business failure.
- Necessary Information:
The bank should inform the guarantor about all the transactions or dealings with debtor or borrower to avoid any loss or dispute due to misunderstanding
