At banks, guarantees are usually part of the mixed short-term credit lines. Every surety therefore entails usage of this credit line, unless it is made through an insurer. Dealing with an insurer therefore allows your company to keep mixed credit lines free at the bank.
In order for a bank to make a credit facility available, your company must provide security and covenants, including for withdrawals in the form of guarantees. Not so if you issue a guarantee through an insurer. This guarantee is only based on the financial information on your company and the inherent risk associated with the specific guarantee.
Your corporate banker is a generalist, not a specialist. This person provides advice on matters of investment project financing, working capital needs, cash management, insurance, credit cards, etc. And indeed, on guarantees. With an insurer, however, a dedicated specialist ‘guarantee manager’ is appointed who will commit 100% to this financial aspect. This makes him or her the ideal person to give you expert advice.
Your banker usually offers standard bank guarantees ‘on first request’. As a result, the bank must immediately pay cash when the guarantee is invoked. A rather dangerous situation that may put your company in a weaker position in relation to the other party. However, you can often negotiate other conditions. The insurer’s guarantee manager can help you in this respect. He or she proactively points out the dangers of certain types of guarantees and guides you through the preparation of ‘balanced’ guarantee texts.
Setting up guarantees requires a fair amount of administration. At least three parties are involved (client, guarantor and beneficiary) who communicate a lot with each other. This must be done quickly and punctually. At insurers, this administration is in the hands of specialists, and the software they offer has been specifically developed to manage guarantees.