People often ask what is the difference between Surety Bonds vs Bank Guarantees.

The products are generally identical and have exactly the same obligations, at law when called on for payment. Under an unconditional bank guarantee, the bank’s liability to make a payment to the beneficiary arises immediately upon the beneficiary making a demand without the beneficiary having to satisfy any other condition precedent and irrespective of whether or not there has been a default by the Contractor under the underlying contract.

Exactly the same obligation, at law, applies to Surety Bonds should an unconditional bond be called on for payment. 

“Payment must be made by the Surety on Demand”

The general format of an unconditional Surety Bond follows the Australian Standards AS2124/AS4000 document. The payment must be made by the Surety upon demand, without any assessment taking place as to the amount paid.

The payment amount is the amount of the claim up to the face value of the bond in question. The only assessment that will take place is to ensure the claim is made in terms of the bond itself. This again is the identical process involved in the payment of a bank guarantee.

“Identical Wording”

The bank guarantee and the surety bond contain identical wording (generally) which states “it is unconditionally agreed that the financial institution will make the payment or payments to the Principal without reference to the Contractors and notwithstanding any notice given by the Contractor not to pay same”.

Also Bonds are widely accepted form of contract security and accepted by the private sector, federal, state and local municipalities and are flexible and operate alongside traditional banking facilities.

Most people get confused  or don’t understand the difference between Surety Bonds vs Bank Guarantees, so If you want to find out what is best option for your business give us a call.