How bank guarantees can help your business

Wednesday 4 May, 2016

Have you heard of bank guarantees and wondered what they are and how they may help you and your business.

Mark Moller, business banking manager with Auswide Bank says bank guarantees are used for a number of reasons but their main use is for rental bonds when looking to lease a commercial property.

Generally a three-month rental bond is required when looking to lease a commercial property and depending on your monthly rent this can end up being a large amount of money to handover.

Rather than hand that money over to your new landlord you can give the money to a bank who will put it in a term deposit on your behalf and they will prepare a bank guarantee for you to provide to the owner.

Bank guarantees are as good as cash, banks are required to hand over the cash amount on the guarantee to the favouree when they present it.

The advantages here are that the bank is holding your money so it is safe and secure and you are earning interest on that money while it is being held for the rental bond.

Of course not everyone have the funds available to provide the rental bond, if you have equity in property, banks can take a mortgage over your property to provide a bank guarantee instead of cash.

This way the owner is satisfied as he has a bank guarantee which is as good as cash and you have not had to try and raise the required funds through a traditional loan facility or eat into your cash flow by putting up cash you couldn’t really afford to get locked away at the time.

Bank guarantees are also used in the construction industry, it is normal for a contract to stipulate a 5 per cent retention on each progress payment until construction completed and then hold 2.5 per cent of the contract price for a 12 month defects period on completion of build.

Again rather than tie up your cash for that length of time and to also receive full payment at progress claims, banks will use the equity in properties you own to provide bank guarantees for retention purposes.

The cost for a bank guarantee is usually 2.5 per cent of the bank guarantee amount which is a lot cheaper than borrowing via a traditional loan to raise the cash for rental bonds or an overdraft as your cash is tied up in retentions.


With more than 20 years’ experience in business lending, Mark Moller is here to help your business grow. Mark understands that a strong relationship between the business owner and the bank is crucial to a business’ success. During his career in banking Mark has worked in many locations including Weipa, Darwin, Gold Coast, Hervey Bay, Kununurra, Blackwater and the Sunshine Coast and as a result has experience with very different local economies.  With a personalised service you just don’t get from the big four banks, you have the comfort of knowing that Mark is a phone call away and has the experience and knowledge to service your financial requirements.


Webinar, May 18: Understanding finance to help grow your business, with Auswide Bank

Want a cheaper interest rate? Wish your bank would give you more money, more quickly so you can grow your business?

Understanding a bank’s loan approval process can result in quicker loan outcomes & maximise your chances of a larger loan at a lower interest rate

This webinar will give an understanding of a banks’ approval processes, what they focus on and the impact, the quality and type of information you should provide and how to potentially turn a no into a yes and/or reduce your ongoing finance cost.

Join Angus Griffith and Geoff Lee from Auswide Bank where they will present practical tips and hints which can assist business owners to understand the complex loan approval process.

Register here

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