What is the difference between a corporate guarantee and a bank guarantee?
A Bank guarantee is given by the bank on behalf of it's customer
(applicant) to the beneficiary of the bank, that in case of non
happening of the particular event which is being covered by that
particular guarantee, the bank ( guarantor) will pay the
beneficiary an amount, which is mentioned in the guarantee,
provided the beneficiary submit the claim under the guarantee in
the agreed format and within agreed time. The claim ( compensation)
under the bank guarantee will be financial in nature.
A corporate guarantee is a guarantee given by the corporate to
cover their own exposure or exposure of some other related entity,
to the bank. It will also be financial in nature and banks derive
an additional comfort from such guarantees when they do their
lending to particular borrower.
Related Q&A：
What is the disadvantage in corporate guarantee？Well, one major disadvantage of a corporate guarantee is the potential financial risk it poses to the guarantor company. If the guaranteed entity fails to meet its obligations, the guarantor could be on the hook for a significant amount of money. That could really put a strain on the guarantor's finances and might even lead to financial distress. Oh, and it can also affect the guarantor's credit rating, which can make it harder and more expensive for them to get future financing. Yikes! Plus, there's the administrative burden of managing and monitoring the guarantee, which takes up time and resources. So, it's not something to take lightly, for sure.
