Glossary
Bank guarantee
Short answer
A bank guarantee is a written undertaking by a bank to pay a beneficiary a stated sum if the applicant fails to perform its contractual obligations. Demand guarantees pay on a complying demand without proof of breach, so they are a strong security that needs careful tracking of amount and expiry date.
By Pactinel editorial teamReviewed on October 22, 2026
A bank guarantee moves the risk of non-performance or non-payment from the beneficiary to the bank. Contracts ask for them as security for performance, advance payments, bids, retention money or rent.
Key terms
- Applicant: the party that asks the bank to issue it.
- Beneficiary: the party that can claim.
- Amount and currency.
- Expiry date or event: after which a claim is no longer possible.
- Demand type: on-demand (pays on a complying demand) or conditional (requires proof of default).
- Governing rules: commonly the ICC Uniform Rules for Demand Guarantees, URDG 758, in force since 1 July 2010.
Example
A supplier delivers a USD 2 million project and provides a bank guarantee for 10% of the contract value, valid until 12 months after acceptance. The customer must claim before the expiry date; after it, the guarantee lapses and must usually be returned.
What to track
- Issue date, amount, expiry and any automatic extension.
- The deadline for a claim and how it must be presented.
- Reduction or release conditions, such as completion of milestones.
- Fees, which banks charge periodically.
See performance bond for the related security on performance. This is general information, not legal advice.