Bank Guarantee
Securing Your Transactions with Confidence: Understanding Bank Guarantees
BANK GAURANTEE
A bank guarantee is a financial instrument that assures payment to a third party if the primary party defaults. Used in business transactions to mitigate risk, it includes types like performance and financial guarantees. Bank guarantees help businesses secure loans by providing lenders with added security, facilitating trade and investment.
Descriptions
A bank guarantee is a financial instrument that assures payment to a third party if the primary party defaults. Used in business transactions to mitigate risk, it includes types like performance and financial guarantees. Bank guarantees help businesses secure loans by providing lenders with added security, facilitating trade and investment.
SMM 30 (Security Money Margin 30%) – Eligibility criteria:
- Traders with turnover of 50 crore and above.
- Manufacturers with turnover of 20 crore and above.
- Amount up to 2.50 crore:
- Against BG: 95%.
- Against LC: 100%.
Mid Cap Company:
- Companies with turnover of 1000 crore and above, no financial documentation required.
- Based on confirmation, limits can be processed up to 4 crore.
- Rating should be AAA.
Large Cap Company:
- Funding up to 5.5 crore and above.
- No financial documents required.
- Turnover of 5000 crore and above with rating AAA.
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Frequently Ask Questions
A Bank Guarantee (BG) is a financial instrument issued by a bank that ensures payment to a beneficiary if the client fails to meet their contractual obligations. It serves as a risk mitigation tool in various business transactions.
SMM 30 refers to a specific eligibility criterion for obtaining a bank guarantee, where a security margin of 30% is required. This applies to traders and manufacturers meeting certain turnover thresholds.
- Traders: Must have a turnover of ₹50 crore and above.
- Manufacturers: Must have a turnover of ₹20 crore and above.
A Mid Cap Company is defined as one with a turnover of ₹1000 crore and above. These companies do not require financial documentation for obtaining a bank guarantee.
Based on confirmation, limits can be processed up to ₹4 crore for Mid Cap Companies, provided they have a credit rating of AAA.
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