If your business needs safety or liquidity with financial instruments of guarantee, we are ever ready for issuance of the different types of guarantees as outlined below.
After a contract is awarded to a party, the party needs to perform under the terms and conditions as stipulated by the beneficiary. Beneficiary to protect his interest asks the customer to submit a performance bond issued by a bank. In case the terms and conditions are violated by the customer, the beneficiary will invoke the guarantee and will obtain compensation for his loss.
Some contracts are awarded through bidding processes. In such bids, participants are demanded to deposit an earnest money or to submit a guarantee letter issued by a bank, which will be used by beneficiary as a security in case of withdrawal by participants when contract is awarded to the participant. Such guarantee is called a bid bond. Such contracts are generally 2-5% of the bidding value as per the requirement of the beneficiary. For issuance of bid bonds, customers need credit line from the bank.
For foreign bidders, it is sometimes difficult to have a guarantee issued from a bank in Nepal due to not having credit lines in a bank in Nepal . And in that case, the foreign party will have a guarantee issued from a bank of repute in their own country in favor of Nabil Bank, which in turn will issue a guarantee on behalf of the foreign party.
ADVANCE PAYMENT GUARANTEE
When a contracting body makes an advance of payment prior to performance of work to help start work and for liquidity of the contractor, they will be exposed to financial risk. To mitigate such risk, they demand beneficiary of the advance payment to submit a guarantee issued by a bank. In case the fund such advanced is abused or the contractor defaults on terms and conditions, beneficiary of the advance payment guarantee will invoke the guarantee and will obtain compensation for their loss.
Under import LC, if bills of lading and other related documents do not arrive at the issuing bank on time prior to arrival of goods, then shipping company and port authority will not release goods to the buyer. In such situations, to release goods, shipping companies will demand a guarantee issued by a bank. Once the original documents arrive at the LC issuing bank and are submitted to the shipping company, guarantee will be released.