Cash backed bank guarantees

The term “cash backed guarantee” can be misleading. When a bank issues a Bank Guarantee it is always a promise to pay (cash) in accordance with the specific verbiage (terms) contained within the format. The issuing bank will honour their obligation despite any underlying security they have obtained from the provider.

The term “cash backed” when used in conjunction with a bank guarantees is a complete irrelevance. When a bank issues a bank guarantee it is a promise to pay in accordance with verbiage contained within the format, and will accordingly honour their obligation despite any underlying security they have obtained from the provider.

The term cash-backed is usually used by those individuals or companies who may not have full knowledge of the bank guarantee market and seek to simplify the terms in order to sell the concept to clients more easily. Where this is the case this should be warning to potential clients that the company or individual they are consulting may not have the necessary expertise.

If upfront payments are requested before any compliance procedure, or indicative offer has ben made this should be a cause for concern. If you wish to know more details about bank guarantees, please get in contact with one of our experts.