Bank guarantee for companies

A bank guarantee is a form of security with which you can prove your company’s ability to meet its contractual obligation to your contracting party. Nordea as the guarantor assumes the monetary liability on behalf of your company. A bank guarantee may be issued in favour of your Finnish or foreign contracting party.

Bank guarantee ensures smooth partnership

A bank guarantee functions as security in many kinds of contracts. For instance, it may be issued as security for a delivery, a guarantee period, a contract price payment, a rental payment for business premises or for compliance with some other contractual obligation. Your company may also use a bank guarantee to meet its statutory security obligations.

Bank guarantees help in financial risk management especially in the case of major projects and new contracting parties. The advantage of a bank guarantee is that you don’t have to prove to your partner your company’s creditworthiness or ability to meet the obligations laid down in your contract.

By offering your contracting party a bank guarantee from Nordea you can prove to them that they are dealing with a reliable counterparty. You can also require a bank guarantee from your contracting party if you want to be sure that your partner will be able to fulfil the contract terms and conditions.

What purposes can a bank guarantee be used for?

  • As security for many types of transactions, such as various deliveries, works contracts, purchases of goods and property or other payment obligations.
  • For fulfilling the security obligations provided for by different official regulations and legislation.
  • For securing and helping your company manage risks especially when your contracting party is new or you are about to conclude a major transaction.

Examples of the most common guarantees

Performance bank guarantee

Performance bank guarantee

A performance bank guarantee, i.e. a contract bond, ensures that the work performance or procurement agreed on by the contractor or developer will be implemented as agreed on. A performance bank guarantee is also called “contract bond during construction”. The guarantee is valid until the end of the construction period and the usual security deposit is around 10 per cent of the contract price or procurement price.

Rental security deposit
Advance payment guarantee

Performance bank guarantee

A performance bank guarantee, i.e. a contract bond, ensures that the work performance or procurement agreed on by the contractor or developer will be implemented as agreed on. A performance bank guarantee is also called “contract bond during construction”. The guarantee is valid until the end of the construction period and the usual security deposit is around 10 per cent of the contract price or procurement price.

Rental security deposit

A rental security deposit is provided for the landlord as security for the rental payments and other obligations laid down in the tenancy agreement. An amount equalling three months’ rent at maximum is considered an appropriate rental security deposit.

Advance payment guarantee

An advance payment guarantee may be issued when the contract price or a part of it is paid in advance. The purpose of this guarantee is to secure the refund of the advance payment received by the customer in full or in part to the constructor/client if the work or delivery is not performed in accordance with the contract. Thus with an advance payment guarantee you can obtain more favourable payment terms for your contract. 

Apply for a bank guarantee for domestic trade

In domestic trade, a guarantee as for one’s own debt is mainly used. A guarantee as for one’s own debt means that the guarantor bank has the right to refuse to pay compensation to the beneficiary before finding out what the guaranteed party’s payment obligation is.

Need a bank guarantee for international trade?

In international trade, an on-demand guarantee is usually used. An on-demand guarantee means that the bank is obliged to effect payment to the beneficiary against a payment claim in accordance with the terms and conditions of the on-demand guarantee, without any right or obligation to find out what the obligation of the guaranteed party is to compensate the beneficiary.

To the beneficiary

You can also require a bank guarantee from your contracting party if you want to be sure that your partner will be able to fulfil the terms and conditions of your contract. The guarantee provides you with protection in your business especially when you do not yet know your contracting party very well. A bank guarantee serves as safe and reliable security for both parties.

See also:

  • We also offer you our Trade Finance Global service through which you can send guarantee applications digitally whenever it suits you best.
  • For foreign trade, we have written guarantee textsOpens new window which you can offer your trading partners across the world. The ready-made guarantee texts will speed up the processing of orders.

Frequently asked questions about bank guarantees