This is a new concept for many people, but it has a growing army of supporters. Many companies are finding it increasingly hard to obtain the bank guarantees they need to fulfill their bonding requirements relating to the projects and contracts they undertake.
In a nutshell, it is the guarantee of the contractual obligations of one party to another. The party that guarantees the debt is called the Surety. They are responsible for guaranteeing the performance of their client and responding to bond calls should there be a contractual breach requiring remedy.
Typically a bank guarantee will require 100% collateral. This can present a heavy burden on a business. In addition it is not an uncommon basis for the bond for it to be paid automatically ‘on demand’, negating a detailed claim validation and verification process.
Bank guarantees are not core business for many banks. Our approach is to offer Surety alternatives to bank guarantees, to produce a ‘win/win’ outcome for the bank and its customers.
Whether supporting an individual business need, or supporting the transition of an entire book of business, our investment in skilled staff and our bespoke technology platform ensures that every surety need is individually examined via our approved panel, of investment grade surety providers.
This is a common misconception. It is not a form of Insurance as there is no transfer of risk. The performance of the Contractor is guaranteed under the terms of the Contract. In the event of a claim, if the Contractor remains solvent, the Surety will asked to be put in funds for the Bond Amount. If the claim is successfully defended, the funds are returned to the Contractor. The 'risk' arises from Contractor Insolvency.
It is the case that many Sureties are Insurance Companies. Having a Surety facility allows you to plan ahead and tender for new work in the knowledge that you have a made to measure solution available to meet your bonding requirements.
In contrast, when a bank issues a bond, the value of such a bond is usually offset against a contractor’s bank facilities. In contrast, having a Surety facility means that your working capital and bank borrowing facilities are not affected. It can be a very useful addition to your company’s liquidity.