Have you heard of Bank Guarantees and ever wondered what they are, and how they may help you and your business.

Bank Guarantees are used for a number of reasons but their main use is for rental bonds when looking to lease a commercial property. Generally a 3 month rental bond is required when looking to lease a commercial property and depending on your monthly rent this can end up being a large amount of money to handover.

Rather than hand that money over to your new landlord, you can give the money to a bank who will put it in a term deposit on your behalf and they will prepare a Bank Guarantee for you to provide to the owner. Bank Guarantees are as good as cash. Banks are required to hand over the cash amount on the guarantee to the Favouree when they present it. The advantages here are that the bank is holding your money so it is safe and secure and you are earning interest on that money whilst it is being held for the rental bond.

Of course not everyone has the funds available to provide the rental bond. If you have equity in property, then a bank can take a mortgage over your property to provide a Bank Guarantee instead of cash. This way the owner is satisfied as he has a Bank Guarantee which is as good as cash and you have not had to try and raise the required funds through a traditional loan facility or eat into your cash flow by putting up cash you couldn't really afford to get locked away at the time.

Bank Guarantees are also used in the construction industry. It is normal for a contract to stipulate a 5% retention on each progress payment until construction completed and then hold 2.5% of the contract price for a 12 month defects period on completion of build. Again rather than tie up your cash for that length of time and to also receive full payment at progress claims, banks will use the equity in properties you own to provide Bank Guarantees for retention purposes.

The cost for a Bank Guarantee is usually 2.50% of the Bank Guarantee amount which is a lot cheaper than borrowing via a traditional loan to raise the cash for rental bonds or an overdraft as your cash is tied up in retentions.