Jul 20, 2013

Bank Guarantees

A bank guarantee is a simple financial instrument, whereby a bank promises that a certain financial obligation will be met.

Issue of Bank Guarantees by Offshore Banks

Provided they have adequate security, nearly all of the offshore banks we work with will be happy to issue a bank guarantee. Normally you will need to have either cash on deposit, or assets such as stocks, shares, funds, precious metals etc in your account of a value that the bank considers adequate. These cannot be withdrawn while the bank guarantee is in force.

Uses of Offshore Bank Guarantees

A typical example would be purchase of property or investment in a business.

Let’s say you have stock worth EUR 750,000 managed in your bank account in Switzerland. You do not want to sell the stock because you are convinced it will continue to increase in value. However, you would like to borrow against it to provide capital for your business, or to purchase a second home on the coast in Spain. The problem is that your offshore bank from Switzerland does not have any operations in Spain and therefore is not able to offer you a mortgage to buy the house there.  A Spanish bank, however, refuses to loan you the money without additional collateral.

The solution is simply to arrange for your bank in Switzerland to issue a guarantee to a Spanish bank, and then the Spanish bank will lend you the money. The Spanish bank is protected because if you do not pay the loan, it can call in the guarantee from the Swiss bank. The Swiss bank is protected because if you default there, they can sell your stock to recoup the losses.

How Offshore Pro Group Can Help You

Offshore Pro Group can advise and assist you in negotiating bank guarantees to be issued on behalf of offshore companies or international/non-resident account holders. Please contact us.