What do you mean by lease bank gurantee?

1. Lease Bank Guarantees can be used for a variety of purposes

3. A lease bank guarantee is an undertaking from a bank or credit union to guarantee payment of the amount to the landlord. The lease will then give the landlord the right to cash in the bank guarantee without your notice or consent, if you breach the lease terms or damage the property. Your landlord can draw down on the bank guarantee to repair the property or bring rental arrears up to date. • A lease bank guarantee is a bank guarantee, which is leased to a third party for a specific fee. The issuing bank will conduct due diligence on the creditworthiness of the customer, looking to secure the bank guarantee. • Following this it will lease a guarantee to that customer for a set amount of money and over a set period of time (typically less than two years).

4. The trend tends to be towards bank guarantees, especially for retail leases and larger amounts. This is because the process dispenses with the administrative requirements of lodging the security deposit. • It has also been argued that bank guarantees are more secure if you go into bankruptcy or liquidation. However, this does not mean that obtaining a bank guarantee is easy. • It may take some time and come at a cost. The issuing bank will send the guarantee to the borrower's main bank, and the issuing bank then becomes a backer for debts incurred by the borrower, up to the guaranteed amount.

6. Leased bank guarantees tend to be very expensive; fees can run as high as 15% of the guarantee amount every year. The fee usually consists of an initial setup fee and an annual fee, both of which will be a percentage of the dollar amount that the issuing bank lease bank guarantee in the event that the company is not able to promptly pay its debts. • Smaller enterprises typically only use this option for financial backing (particularly those who are desperate to expand operations and/or fund a specific project). These enterprises will have typically exhausted other opportunities to raise financing or obtain a letter of credit from their own bank. • To determine if a borrower is worthy of a lease bank guarantee, many banks will undertake a credit analysis.

7. Credit analyses focus on the ability of the organization to meet its debt obligations, focusing on default risk. Lenders will generally work through the five C's to determine credit risk: the applicant's credit history, capacity to repay, its capital, the loan's conditions, and associated collateral. • This form of due diligence can revolve around liquidity and solvency ratios. Liquidity measures the ease with which an individual or company can meet its financial obligations with the current assets available to them, while solvency measures its ability to repay long-term debts. • Specific liquidity ratios a credit analyst may use to determine short-term vitality are: current ratio, quick ratio or acid test, and cash ratio. Solvency ratios might entail the interest coverage ratio.