With or without instructions to third-party bank
Direct guarantees are used primarily in domestic business. However, an accessory security in the form of a surety is often enough. This is issued directly to the beneficiary in the same way as a direct guarantee.
Guarantees apply whenever the bank's undertaking to provide security is not contingent on the existence, validity and enforceability of the principal obligation. For this reason guarantees are frequently opted for in cross-border transactions, because the beneficiary is able to assert his or her claims rapidly due to the abstract legal nature of the guarantee. Guarantees have the added advantage of being easier to adapt to foreign legal systems and practices, because there are no form requirements. Due to cost and risk considerations, direct guarantees are increasingly being used in foreign business as well.
Indirect guarantees are mainly issued in connection with export business - in particular when government agencies or public entities are the beneficiaries.
In addition, many countries do not accept foreign banks as guarantors due to legal provisions or other form requirements (e.g. Middle-Eastern countries).
With an indirect guarantee, a second bank (usually a foreign bank with head office in the beneficiary's country of domicile) is involved.
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