A guarantee is, in its legal form, a security. The issuer of the guarantee (Guarantor) undertakes to provide financial compensation to a beneficiary of the guarantee in case the client (Principal) can not fulfill his commitment.
Guarantees issued by insurance companies are, more or less, identical with guarantees issued by banks. By using an insurance company to issue the guarantee, the client often does not have to provide collateral and that the insurance companies can offer modern on-line solutions that make the client’s administration of guarantees quick and easy.
A guarantee relation is a tripartite relationship as illustrated below:
Cover the Buyer’s loss in case the seller refuse to sign contract, withdraws his bid or can not provide a required performance guarantee.
Advance payment guarantee
Covering repayment of advance payment in case of non-delivery.
Cover the seller / contractor’s performance of a contract.
Maintenance / warranty guarantee
Cover the seller / contractor’s obligation to correct defaults and failures during the maintenance / warranty period.
Cover the buyer’s commitment to pay and can be issued for a single delivery or for ongoing deliveries.
Secures that the tenant fulfill his obligation to pay rents.
When importing goods, the importer may provide a guarantee to the Custom Authorities for easier handling of custom duties and other related charges.
According to Resegarantilagen (Travel Guarantees Act), all companies carrying out package travel must provide a guarantee to the authority Kammarkollegiet (Legal, Financial and Administrative Service Agency) as security for travelers’ advance payments and home transports.
Tenant owner association guarantee
When establishing a new tenant owner association, the developer is required to provide a deposit guarantee. This guarantee ensure that buyers can recover advance payments and final payments if the association’s economic plan is not met.