A bank guarantee is a promise made by a financial institution to cover a borrower's debt if they default. There are direct and indirect guarantees, with direct guarantees often used in international transactions, while each type carries different costs and risks. The document also illustrates a practical example where a performance guarantee is required to ensure project completion.

1. Bank Guarantee

2. Bank Guarantee
A bank guarantee is a kind of what is bank guarantee from a lending institute
or assurance that the financial institution gives to an external party if the
borrower cannot repay the debt or meet its financial liability. In such a case,
the bank will refund the amount to the party to whom the guarantee is
issued. If a bank guarantee enables the customer (or debtor) to acquire
goods, buy equipment, or draw down a loan.
There are different kinds of bank guarantees, which are direct and indirect
guarantees.
Indirect guarantee - Banks typically use direct guarantees in foreign or
domestic business, issued directly to the beneficiary.
Direct guarantee – it applies when the bank’s security does not rely on the
existence, validity, and enforceability of the main obligation.

3. There are key features of the bank guarantee.
A bank guarantee is when a lending institution promises to cover a loss if a
borrower defaults on a loan.
Parties to a loan choose direct guarantees for international and cross-border
transactions.
The guarantee provides additional risk to the lender, so loans with such a
guarantee will come with greater costs or interest rates.
For example, Mr. A contracted with Mr. B to complete the project within the
stipulated time. In addition, Mr. must furnish a bank guarantee so that if the
project is not completed within the said time, they can recover the loss
incurred by Mr. A. therefore, Mr. B shall apply for a performance guarantee as
it is linked to the performance of the contract.