Call Us Now: +912235624783 | Contact Us |

Commercial Sureties

Commercial Surety Bonds are a wide range of non-contract sureties, that guarantee the performance of the obligation under the contract by the principal. They are used to assure the principal's compliance with the law, performance under a contract or even the integrity or financial responsibility of the principal. Commercial surety bonds are becoming increasingly common with private businesses to secure contractual obligations.

Dealer Default Guarantees

Manufacturers usually require a dealer to put up a bank guarantee or a security deposit to protect themselves in the event of a default by the dealer in paying the manufacturer for the purchases made by them. The bank guarantees are inefficient as it cuts across the dealers banking lines and consumes on collaterals and margin money. Dealer default guarantees provide an alternative to a cash deposit or a Bank Guarantee and indemnifies the manufacturer from loss caused by the default of the dealer.

Dealer default guarantees are highly attractive and a capital efficient alternative for the dealer which provide the manufacturers with peace of mind against any defaults while at the same time reducing balance sheet risks.

Residual Value Guarantee (RVG)

RVG provides guarantee on assets for their future value. RVG indemnifies the owner against loss, which might occur if the sale of a properly maintained asset is less than the residual value at the point specified in the guarantee. It covers a clearly defined risk of a loss of an underlying assets value at the end of a lease contract due to unforeseen market fluctuation. In other words, it guarantees the value of an asset at a future date and transfers the substantial economic risk from the financial institution to the residual value guarantor.

Residual Value Guarantee has two uses for financial institutions, which write leases:

  • Asset value cover
  • Management of financial reporting

RVG is extremely beneficial for large ticket lease, a market with large demand- supply imbalance and in the case of contract lengths from 5 years to 15 years. With a lower cost of capital, lenders using RVG are at a competitive cost advantage to lessors not using RVG thus enabling them to offer more competitive rates to clients while maintaining net interest margin. The uncertainties and the need for returns ensure that the market still needs residual value guarantees. insurance. It is in effect a sold out option on the value of the asset with reduced debt service costs, increased gearing and additional flexibility for operating leases as added advantages.

Financial Default Guarantees

A financial default guarantee serves as a security for a credit line, in which the the guarantor undertakes to pay to the lender any amount up to the maximum guaranteed amount in the event of a default by the borrower. The credit default guarantee may be taken either to cover the entire loan including the principal, interest, and all other charges or a part of the loan. Financial default guarantees covering a part of the loan can assume the form of first loss guarantee or an excess of loss guarantees where the losses by way of borrower defaults are covered if they exceed pre-agreed levels either on a per loan basis or on a portfolio basis. Financial Default Guarantees helps a borrower improve his credit worthiness Financial Guarantees can also be used as credit enhancements whereby it reduces the perceived credit risk associated with a borrowing. It also helps the borrower obtain better terms for its borrowing program from a wider set of lenders.