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What is a Company Guarantee?

A company guarantee can be used in lieu of a surety bond, but is much riskier to the Obligee. The reason for that is that a private company guarantee requires that the Obligee determine that the company that is providing the guarantee is sufficient in both having the financial wherewithal to guarantee the bond, plus also that the company providing the guarantee is willing to go through with payment if the contractor defaults.

Most Obligee prefer to have a performance bond and payment bond instead of a private company guarantee. These types of bonds are three party agreements that provide a much better guarantee to the Obligee. Further, most corporate sureties are very large insurance companies, like AIG and Travelers Insurance.

A Company Guarantee is another name for a surety bond. These can either be a performance bond, or a payment bond (or a performance and payment bond) or even some other sort of guarantee. A surety bond is slightly different than a typical guaranteee in that it involves a third party and not just the company alone. A standard corporate guarantee is that the company itself provides the assurance for the deed being guaranteed. However, a performance bond takes it one step further. In a performance bond, the company goes out and gets another company to come in and provide the assurance for the company. So, the surety is the company that provides the guarantee if the company is unable to perform according to the contract or if the company does not pay its material vendors or subcontractors and the surety has to provide payment for the payment bond. In that case, the surety will pay. Once the surety pays, it will then look to the company to provide for reimbursement for any such payment. This extra layer provides significant benefit in that there are now two companies on the hook for the contract that has the surety performance bond.

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