The UAE has the fourth highest GDP in the world, standing at more than 275 Billion USD. This means the country has so many economic opportunities spread across sectors. One area that remains pivotal to international trade is the financial services sector. In this post, we discuss about one of the most crucial documents used by companies across board – a bank guarantee. Read along to know more about bank guarantee charges in the UAE.
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What Are Bank Guarantees?
As suggested by its name, a bank guarantee is a formal agreement between a bank, an applicant and a beneficiary. The applicant is the individual or company seeking a guarantee from the bank while the beneficiary is the party to receive the guarantee. This agreement promises the beneficiary that the bank will take liability for the applicant if he or she fails to settle their contractual obligation. Simply put, the bank becomes a guarantor on behalf of its client, the applicant.
Types of Bank Guarantees
Bank guarantees are very important in promoting domestic, international and cross border trade. They come in different forms, including:
- Bid bond guarantees
- Performance guarantees
- Deferred payment guarantees
- Financial guarantees
- Shipping bank guarantees
- Loan guarantees
- Foreign bank guarantees
All these guarantees assure the seller that the lender/applicant will settle their debt on a particular date. In essence, they serve as collateral for repaying a loan.
BG Calculation Process
Banks in Dubai charge different rates for bank guarantees. However, the rates range from 1.25% to 30% of the total amount covered depending on the type of guarantee and risk involved.
Benefits of Bank Guarantees
Bank guarantees offer so many benefits to all parties involved. Some of the reasons why bank guarantees are important include:
- They add creditworthiness to a business thus enhancing the reputation of your brand as a trusted company
- They assure the beneficiary that the applying company is stable and reliable
- They reduce the risk of possible loss in case the seller receives an advance payment but fails to deliver goods or services
- They provide a candid assessment of the company’s performance
How to Qualify for A Bank Guarantee
To become eligible for a bank guarantee, you must be an account holder with a particular bank. You must then fill out an application form explaining reasons why you need the bank to become your guarantor. An easy way to go about it is to contact an experienced trade finance company to take you through the steps of applying for a bank guarantee.
Get in Touch
Handling international trade transactions can be a complex process for anyone. Find a Dubai based company with vast experience in offering structured trade finance solutions. Call us today to talk to our experienced banking professionals.