Need to provide more financial assurance to a client? A bank guarantee can provide a layer of security for your business.

Business contracts for construction, leasing, trade, or other services may require a bank guarantee to establish trust between parties for the delivery of payment for services.

What is a bank guarantee?

A client may request for a business to obtain a bank guarantee as part of the negotiation process for a contract — this request can be for any number of reasons but usually involves insufficient trust in the business's ability to fulfil its end of the contract.

A bank guarantee is a form of financial assurance from a third-party lender (usually a bank) that is provided to clients by businesses in a transaction. In the event the business becomes unable to fulfil its obligations in a contractual transaction, the guarantee covers the financial liabilities of the promised payment or services.

Bank guarantees are often used for:

  • Security deposits or rental guarantees that serve as collateral for rental agreement payments.
  • Advance payment guarantee for reimbursing the buyers when the business does not supply the promised goods as per the contract.
  • A performance bond that serves as collateral for the beneficiary’s incurred expenses if services or goods are not provided as contractually agreed.

The validity period of a bank guarantee is decided between the applying business and the beneficiary — during this period, the beneficiary is able to make a claim on the guarantee if the business fails to fulfil its contractual obligations. 

Past the indicated expiry date for the bank guarantee, however, the business will no longer hold any obligations to the beneficiary or the bank and will be able to retrieve the security amount placed for the guarantee.

There are also options where the term of the existing bank guarantee can be extended in future for the provision of ongoing services or agreements, such as an added period of 3 to 6 months after the expiry date.

Businesses applying for a bank guarantee are required to provide: 

  • Beneficiary’s legal name or if it’s a business, the beneficiary’s ABN or ACN
  • Beneficiary’s address (no PO boxes)
  • Bank guarantee purpose
  • Guarantee amount ($5,000 minimum)
  • Expiry date

What is required to apply for a bank guarantee?

Businesses applying for a bank guarantee are required to provide: 

  • Beneficiary’s legal name or if it’s a business, the beneficiary’s ABN or ACN
  • Beneficiary’s address (no PO boxes)
  • Bank guarantee purpose
  • Guarantee amount ($5,000 minimum)
  • Expiry date
Frequently Asked Questions

Estimated processing times for bank guarantees range from 1-3 business days.

Any missing documents for the bank guarantee application will invariably result in unwanted delays — businesses should always prepare the relevant documents in advance and check them before applying.

Beneficiaries of a bank guarantee are able to make a claim before its expiry date. In response, the bank first takes steps to check the validity of the claim.

Should the business be found in breach of the terms of the guarantee, the bank notifies the business and proceeds to pay the guaranteed amount to the beneficiary.

The business will then be responsible for making repayments to the bank for the guaranteed amount, plus any additional fees or interest.

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