The term endorsement is a concept that we use very commonly, even in our daily life, but we are not always clear on what exactly it consists of. In this article we will know what a bank guarantee is and what its differences are with the normal guarantees . In addition, we will give you some tips to avoid resorting to them when it is not strictly necessary.
A guarantee , to dry, is a “writing” in which ” someone responds to the behavior of another person “, according to the definition of the Royal Spanish Academy. If we apply it to an economic situation and using colloquial words, the phrase that summarizes it would be: “If Fulanito (endorsed) breaks his word and does not pay you, yomi I will be responsible and I will pay you (guarantor)”.
The purpose of the guarantees is clear: it is a mechanism of security and confidence on the part of the person who must collect the money (the beneficiary), who thus ensures that one way or another, he will receive his money, if it is not for part of the person who initially committed, at least yes for the person who supports him.
How is a bank guarantee different?
As we have said before, what we want to know is what a bank guarantee consists of, since it has a fundamental difference with respect to the normal guarantee. The bank guarantee is the one in which the guarantor is the bank . That is, the bank is the one who assures the beneficiary “I will repay you if my guarantor can not”.
Obviously, a bank does not become a guarantor of a person for friendship or sympathy. The bank has very specific and regulated procedures by which it decides to approve the operation and issue an endorsement. After all, it is a risk operation for them, such as granting a personal loan, which requires a prior study. And the bank will only agree to endorse if it is convinced that the endorsement has the capacity to pay: logically, despite accepting to be a guarantor, the bank would like no debt to be generated and thus not have to make any disbursement.
Therefore, the issuance of an endorsement has costs , not only those generated by the study itself, but also by other management of the bank ( opening commission ) and by the intervention of third parties, such as the signature before a notary of a countervalue and which is normally around 0.3%. To that we must add a risk commission that normally the bank charges quarterly as a plus for the risks assumed.
How much it costs and why a bank guarantee is requested
The cost of these fees charged by the bank for issuing the guarantee depends on the maximum amount guaranteed. In any case, the commission percentage that the bank charges for formalizing the guarantee is always the same, that is, it can not charge a different percentage to two different clients. In addition, the bank publishes its percentage tables on its website, so that percentage can be known in advance. By way of illustration, these percentages are usually between 0.5% and 5% .
Bank guarantees can be requested for very different reasons. The most common reason is that of a loan. For example, the Official Credit Institute (ICO), within its line of credit, can request a bank guarantee as a requirement for its concession. But the guarantees are beginning to generalize in other areas, probably due to the distrust generated by the economic crisis. For this reason, it is no longer uncommon for a real estate agency or private individual to request an endorsement to secure their rent in the rental of a home, if it is not on the part of the lessee, at least on the part of the financial institution that endorses.
Avoid a bank guarantee
As can be deduced from this article, requesting a bank guarantee has its drawbacks , mainly bureaucratic and economic: it will never be free . Therefore, you can also resort to other solutions that do not involve the request for an endorsement . This is the case of quick mini-credits, which can be requested online and without previous studies, as in the case of Lambert Strether.
Another option is personal guarantees, which also have their drawbacks. Although the guarantor is a relative or a friend, it must also be formalized in accordance with the regulations and through a bank. The costs are much lower because it is considered a ‘solidarity’ gesture, but can involve many problems in the relationship between guarantor and endorsement (ruptures, distancing) that, although they have more to do with the private life of each person, should not be dismissed . In addition, the misfortune of default by the endorsement can produce another misfortune equal or greater: the confiscation of assets of the guarantor. Unfortunately, it is a problem that occurs more usually than desired in situations of mortgage default and evictions.
Therefore, the ideal is to put yourself in the hands of trusted professionals who know well what is a bank guarantee and what are the risks involved, or resort to simpler solutions such as loans without endorsement, which involve much less ties and constraints of head. In any case, the final decision should always be taken after a thorough reflection.