Letter of Guarantee insurance provides a guarantee to protect the accepted obligations taken under the contract by foreign buyers.
Canadian exporters must provide bonds to their foreign buyers. These are provided in a form of letters of guarantee or standby letters of credit. This is done to protect the accepted obligations taken under the contracts. When bonds are issued by financial institutions, you are required to provide collateral supporting them. Usually, a portion of the line of credit is carved out for covering the collateral amount. This can severely affect the working capital allotted to carry out general operations.
This credit problem can be solved using a performance security guarantee. It provides a completely unconditional and irrevocable guarantee to the financial institution. This will allow you to access your working capital and free up financial capacity under cash reserve or credit line.
A performance security guarantee is issued essentially on a bonding line. Different types of obligations are covered under this guarantee. Contractual obligations are the most common ones.
Account performance security guarantee provides financial institutions with the assurance of full payment on any call made against the provided guarantees.
Financial institutions gain confidence in issuing guarantees if they are protected. This will help you sail smoothly in pursuing new business opportunities.
Issuance requirements of your letter of guarantee are covered by the account performance security guarantee at a pre-set rate. This informs you of your exact bonding capacity.
Performance security insurance is offered to complement the performance security guarantee. It is specifically designed to protect you from your buyers if they make a call against the letter of guarantee or a standby letter of credit without any reason.
In a case like this, performance security insurance will indemnify losses up to 95% of the losses as long as you have not breached the obligations mentioned under the contract. Performance security insurance can be used on its own or tied up with a performance security guarantee.
Eligbility Criteria
Account Performance Security guarantee provides complete guarantee of the security held as collateral for issuing bonds.
The fee varies depending on the validity period and customer risk rating, which is based on historical financial performance and forecast, risks associated with industry and transaction.
It is subject to renewal annually.
A claim must be submitted before the demanded date of expiration.
It takes less than 5 business days after submission of a complete application and requested documents.
