Types of Bank Guarantees

• Bid/Tender Guarantees:

In tender and bidding processes, tendering authorities require a bid or tender guarantee. This guarantee assures them that bidders will sign the contract and provide the required performance guarantee if awarded.

• Performance Guarantee:

Performance guarantees are provided to ensure that contractors or suppliers meet their contractual obligations in accordance with the agreed terms and conditions. In construction projects, project owners often require such guarantees to ensure the contractor completes the work on time, meets quality standards, and performs according to the contract.

• Advance Payment Guarantee:

When a buyer pays an advance to a seller—common in import or export transactions—the seller often must provide an advance payment guarantee. This guarantee protects the buyer by ensuring the seller refunds the advance if they fail to deliver the goods or services as agreed. In construction contracts, project owners typically demand a bank guarantee before releasing any advance payment to the contractor.

• Bid / Tender Guarantee:

In many tender and bidding processes, the authority requires a bid or tender guarantee. This guarantee assures the tendering authority that, if awarded the contract, the bidder will sign the contract and provide the required performance guarantee.

• Retention Money Guarantee:

In construction and infrastructure projects, project owners commonly withhold a percentage of the contract value as retention money until project completion. A retention money guarantee assures the contractor that the owner will release this amount upon satisfactory completion.

• Off-Plan Property Development:

UAE real estate authorities typically prohibit developers from selling off-plan units until they complete 20% to 30% of the project. Developers can bypass this restriction by providing a bank guarantee equal to that percentage.

• Financial Guarantee:

Financial guarantees are provided to secure various financial obligations, including loans, leases, and credit facilities. They offer assurance to the lender or lessor that the borrower or lessee will meet their payment obligations in accordance with the agreed terms.

Strategia Finance can facilitate the issuance of all of the above guarantees from banks regulated by the UAE Central Bank as well as GCC and international banks outside the UAE.

Advantages of Bank Guarantee:

• Risk Mitigation: it provides a safety net to the beneficiary by reducing the risk associated with financial transactions. It ensures that the other party is financially protected if the other party fails to meet its obligations.
• Enhances Credibility: bank guarantees demonstrates the applicant’s financial strength and commitment to fulfill its obligations in the transaction contract, this increases its credibility and trustworthiness in the eyes of the beneficiary.
• Increases International Trade: bank guarantees are essential in cross-border transactions as they provide assurance to foreign buyers or sellers. They help mitigate risks associated with unfamiliar markets, cultural differences, and potential payment defaults.
• Contractual Protection:: bank guarantees act as a legally binding contract, offering protection to both the applicant and the beneficiary. They provide recourse in case of non-compliance or breach of contract.

Selecting the Right Bank Guarantee

Selecting an appropriate bank guarantee (BG) provider requires assessing factors such as financial stability, regulatory compliance, cost, and issuance speed to ensure the guarantee is valid, widely accepted, and cost-efficient.

Reputable providers include banks regulated by the UAE Central Bank as well as leading global banks—such as HSBC, Barclays, Deutsche Bank or specialized financial institutions that adhere to international standards. Here are some tips that will help you decide:

1. Credibility and Reputation

The applicant should ensure that the issuing bank is a rated bank and at the same time acceptable by the beneficiary’s bank, and at the same time there is a direct connection between the issuing and receiving bank.

More importantly, the applicant should ensure that the providing party – in case of 3rd party provider, i.e., a provider that is providing the guarantee on behalf of the applicant – has enough fund or credit limit in his account to issue the bank guarantee.

2. Bank Guarantee Type and Text (Verbiage)

The applicant is expected to be aware of the type of bank guarantee the beneficiary is looking for, he should also make the issuing bank and the 3rd party provider (in case of 3rd party provider) are aware of all all details pertaining to the bank guarantee, including the presentation of the underlying project documents to avoid any ambiguity and hence wrong guarantee. The applicant should also ensure that the bank guarantee’s text that is required by the beneficiary is adhered to by the the issuing bank otherwise the guarantee will not be accepted as every small detail in the text makes a big difference in terms of acceptance, especially when the beneficiary is a government or semi government entity in the UAE.

3. Cost and Terms

As a substantial stake of bank guarantees are issued by a 3rd party provider (a company or individual that is providing the guarantee from their account on behalf of the applicant), one has pay attention to the cost of issuance. The cost in UAE ranges between 7% to 9% in case the applicant contributes between 20% to 30% of the bank guarantee amount, that percentage goes up to 10% to 12% in case no contribution from the applicant. However in all cases, there should be NO fee advance payment, unless made through an escrow (lawyer office or an authorized Escrow agency.

What you should expect:

1- Simple, flexible, reasonably priced bank guarantees for all purposes

2- Genuine and verifiable bank guarantees

3- Trusted 3rd party providers

4- Fast issuance in a few days

To apply for a bank instrument, you may fill out the below form: