Guarantees and Standby Letters of Credit
Traditional trade solutions (instruments) in the form of Guarantees and Standby Letters of Credit can help you meet your business objectives and enable both parties to trade with increased security and reduced risk.
Risk management and working capital solutions
Guarantees and Standby Letters of Credit are standalone, independent undertakings given by the ‘Issuing Bank’ to the ‘Beneficiary’ for an agreed sum payable on receipt of a demand in writing. Overall, the instruments provide the beneficiary with the assurance that they will obtain the intended service or outcome by the ‘Applicant’ or be compensated by the Issuing Bank. In some countries, the local market practice is to issue or receive Standby Letters of Credit rather than Guarantees.
These are ideal for businesses seeking to expand into new markets, manage international and domestic project risks, optimise their working capital, or require payment assurances without the need to make upfront payments or provide cash deposits to those individuals (as even cash collateral to secure can be held by the Bank on your behalf).
Overview
- Comprehensive assurance: Guarantees and Standby Letters of Credit provide independent payment assurances, ensuring Beneficiaries receive compensation for non-performance or non-delivery.
- Optimised working capital: These instruments allow businesses to manage their cash flow effectively by reducing the need for upfront payments or cash deposits.
- Tailored solutions: With negotiable wording, HSBC Innovation Banking offers flexible guarantees and letters of credit that can be customised to meet specific business needs in both domestic and international markets.
- Global network: HSBC Innovation Banking is backed by a global network of group offices and correspondent banks, enabling us to meet specific guarantee requirements, whether domestic or international.
Key features
- Flexibility: The terms and wording of the Guarantees and Standby Letters of Credit can be customised between the parties involved, allowing for tailored solutions that meet specific business needs.
- Accelerate business expansion: Expand into new markets and capture new opportunities, e.g. bid for and execute domestic and international projects and contracts.
- Optimise your working capital: An alternative to making upfront payments or placing cash deposits, helping businesses better manage their working capital.
- Risk Management: Provide protection to the Beneficiary for non-payment, non-performance, or non-delivery (across domestic and international projects or markets).
- Multiple use cases: The product includes various types of guarantees, such as Tender Guarantees, Advance Payment Guarantees, VAT Bonds, and Performance Bonds, catering to different contractual obligations and trade scenarios (read more below).
Note that all debts need to be repaid, and any security is at risk if not repaid in line with the agreed terms
Key benefits
We can arrange various types of Standby Letters of Credit / Guarantees to cover different risk scenarios. We’ve listed some of those we arrange most frequently below, but please connect with us to discuss your specific needs:
- Rental Guarantee – Guaranteeing financial obligations such as rental payments under lease agreements.
- VAT Bond/Duty Deferment Bond – supports the import of goods from outside the UK without immediately having to pay duty or tax to HMRC.
- Performance Bonds – a common type of guarantee that supports a business’s obligation under a contract. These are commonly requested by the beneficiary to reduce the risk of a scenario not occurring (i.e. where the seller has not met contractual obligations or the payment of delivered goods does not occur).
- Tender Guarantee/Bid Bond – often required at an early stage of submitting tenders or pitching for a contract.
- Advance Payment Guarantee – used to support a business which receives an advance payment at an early stage of a contract.
- Facility Guarantee – enabling you to secure banking facilities for a subsidiary, associate company or personal account.
To find out which is most suitable for your business, contact your Relationship Team, who will introduce you to our Trade specialists.
Request a Guarantee or Standby Letter of Credit
If you wish to request the issuance of a Guarantee or Standby Letter of Credit then please contact our dedicated team via email at innv-uk-productrequest@hsbc.com who will be happy to guide you through the process, and support the completion of our Guarantee or Standby Letter of Credit smartforms (either issuing new or amending existing instruments).