What is a bank endorsement and how do I get one?

A bank endorsement is a guarantee through which a bank commits to fulfilling an obligation to a third party.

A bank endorsement is a guarantee through which an endorser (bank) commits to fulfilling an obligation to a third party (beneficiary) on behalf of the endorsed party (typically the customer) in the event that the latter does not fulfill its obligation. Typically, guaranteed obligations involve paying an amount of money. However, endorsements can also be issued as guarantees of other obligations (e.g., the satisfactory termination of a project, the supply of materials, or the participation in bids and tenders).

For a bank, an endorsement involves a degree of a risk, just like a loan. The difference is that a guarantee does not represent an immediate payment of money by the bank in favor of the recipient of the guarantee, although this could be in case in the future, if the recipient executes it, i.e., enforces the fulfillment of the guarantee. In this event, the bank, which has fulfilled its obligation before the recipient of the guarantee, will claim this amount from the customer.

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So the participating bank commits to fulfill the obligation to the beneficiary in the event that the customer (endorsed) does not. The fulfillment of the endorsed obligation may or may not be financial in nature.

For the customer (endorsed), having an endorsement enables him/her to meet the beneficiary's demands required by a commercial relationship (a contract for the purchase or sale of goods, execution or bidding of work, etc.).

For a bank to issue an endorsement, the customer (endorsed) is required to sign a Bank Guarantee Policy in the presence of a notary public, or a Bank Guarantee Limitation Coverage Policy if the customer signs multiple endorsements, regulating the relationship between the bank and the endorsed party related to the endorsement (e.g., payment of fees, interest and stipulated costs, repayment of the amount paid by the bank as a result of the endorsement, etc.).

Types of bank guarantees

  • Financial: Any endorsement in which the bank commits to the payment of a set amount in the event that the endorsed does not.
  • Technical: Those endorsements in which the bank responds in the event that the endorsed has not fulfilled the obligations of different payments. In general, these obligations are held with public bodies or public administrations, but may also be held with third parties. The bank responds against the non-fulfillment of the debtor's commitments against these third parties, for reasons such as shares in contests or tenders, development of projects, supplies, proper functioning of machinery sold, administrative appeals, etc.
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To offset the assumed risk, the bank receives certain fees based on the endorsement term, type, and risk. Endorsements can be defined or undefined. The duration is one of the most important aspects of the endorsement, as it limits how long the guarantee granted by the bank remains valid.

The most common endorsements are for home rental. In these cases, the lessor requests from the lessee a guarantee corresponding to a certain number of monthly payments in order to guarantee the payment of the same in the event that the lessee does not pay.

Pre-guarantees are another important arrangement in which the bank undertakes to grant the final guarantee to the requesting person or company and in favor of the recipient of the guarantee, provided that the conditions set forth in this commitment are fulfilled, which, under no circumstance, is the responsibility of the bank.

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