Leased Bank Guarantee

AAA

DEFINITION of 'Leased Bank Guarantee'

A bank guarantee that 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 a bank guarantee, then lease a guarantee to that customer for a set amount of money and over a set period of time, typically less than two years. 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.

INVESTOPEDIA EXPLAINS 'Leased Bank Guarantee'

Leased bank guarantees tend to be very expensive; fees can run as high as 15% of the guarantee amount every year. The fee is usually made up of an initial setup fee and an annual fee, both of which will be a percentage of the dollar amount to be "guaranteed", or covered by the issuing bank in the event that the company can't promptly pay its debts.

This option for financial backing is typically only used by smaller enterprises that are desperate to expand operations or fund a specific project; they will have typically exhausted other opportunities to raise financing or obtain a letter of credit from their own bank.

Many top worldwide banks will lease bank guarantees, usually with a minimum amount of $5 million to $10 million, all the way up to $10 billion and more.

RELATED TERMS
  1. Capital Lease

    A lease considered to have the economic characteristics of asset ...
  2. Bank Guarantee

    A guarantee from a lending institution ensuring that the liabilities ...
  3. Default Risk

    The event in which companies or individuals will be unable to ...
  4. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a ...
  5. Letter Of Guarantee

    1. A type of contract issued by a bank on behalf of a customer ...
  6. Back-To-Back Letters Of Credit

    Two letters of credit (LCs) used together to help a seller finance ...
Related Articles
  1.  Here we take a look at how you can evaluate whether the debt will affect your investment.
    Investing Basics

    Will Corporate Debt Drag Your Stock Down?

    Borrowed funds can mean a leg up for companies or the boot for investors. Find out how to tell the difference.
  2. Credit & Loans

    The Evolution Of Banking

    Banks are a part of ancient history. Find out how this system of money management developed into what we know today.
  3. Investing

    When would a corporation want to refinance its debt?

    Favorable market conditions or the strengthening of a company's credit rating may lead to the refinancing of corporate debt. The two primary factors for influencing a company to refinance are ...
  4. Savings

    What US banks offer the best savings accounts?

    Explore the best savings accounts offered by national banks comparing annual yield and other factors. Learn why the highest-yield accounts are offered online.
  5. Savings

    What Canadian banks offer the best savings accounts?

    Learn about different savings accounts in Canada. Explore different interest rates and fees as well as accounts that are protected by the CDIC.
  6. Budgeting

    What US banks offer free checking accounts?

    Quit wasting money on monthly fees associated with your checking account and get a free checking account from reputable national banks.
  7. Just how are bank stress tests performed and what is the logic behind them? And is a stress test useful for evaluating a bank's stock?
    Investing Basics

    An Investor's Guide To Bank Stress-Testing

    Just how are bank stress tests performed and what is the logic behind them? And is a stress test useful for evaluating a bank's stock?
  8. Credit & Loans

    What is the difference between a state and a federally chartered credit union?

    Learn how federal chartered credit unions are regulated by the NCUA, while state chartered unions are regulated by their state's division of financial services.
  9. Bank of America isn't America's central bank, but given its size and spread, you could be forgiven this misapprehension.
    Stock Analysis

    How Bank of America Holds 1/8 of All U.S. Deposits

    Bank of America isn't America's central bank, but given its size and spread, you could be forgiven this misapprehension.
  10. If there's any bank that's too big to fail, JPMorgan Chase & Co. may very well be the best example. Just look at its return on equity.
    Stock Analysis

    JPMorgan Chase: Too Big (And Profitable) To Fail

    If there's any bank that's too big to fail, JPMorgan Chase & Co. may very well be the best example. Just look at its return on equity.

You May Also Like

Hot Definitions
  1. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  2. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  3. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  4. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  5. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  6. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
Trading Center