Guidance on technical bonds for companies
Technical guarantees for companies are widely used by companies that operate with Public Administration. We are going to explain what technical guarantees are, the difference among them and financial guarantees and how it benefits your company to present them by means of surety insurance.
What is a technical bond and what is its function?
The technical guarantee is a type of guarantee that reinforces the obligation to provide a service or benefit that does not involve the disbursement of money. This type of guarantee for companies is mainly aimed at those companies that work with public organisms and that are required to present a guarantee that ensures the correct completion of the services according to the contract.
Who is involved in a guarantee?
We will find three parts in the technical bonds:
- Policyholder: The person or entity that has the obligation to comply with the agreement and contracts of the guarantee.
- Beneficiary of the guarantee: This is the person, company or entity receiving the guarantee. In other words, the person who benefits from the execution of the guarantee in the event of breach of contract.
- Insurer: The insurance company that would be responsible for the established payment of the established amount.
The Guarantee Certificate
The parts described above together with their obligations are represented in the guaranteed certificate. The guaranteed certificate is the document that the policyholder presents to the Beneficiary of the guarantee confirming that the risk is covered and that the risk is covered by surety insurance.
A guaranteed certificate contains the following information:
- Who is the policyholder, the beneficiary of the guarantee and the insurer.
- The covered bond.
- The reason why the obligation will be breached.
- How to request the execution of the guarantee by the beneficiary.
- Period of validity of the guarantee.
- Amount insured.
Example of a technical bond for a company
A company receives a public contract through a concession. By law, it must submit a guarantee to the relevant public authority or public organism. With this guarantee, the administration ensures compensation by enforcing the guarantee in case the service is not performed as stipulated in the contract. For example, if you are a construction company, the guarantee could be executed in case of non-compliance with deadlines, qualities or costs.
Technical guarantees through surety insurance
The technical guarantee by surety insurance is a contract in which it is specified that the insurer (who contracts the surety insurance) is required to indemnify the insured in the event of non-fulfilment of the legal obligations or services signed by contract.
Difference between technical and economic guarantees
Companies often confuse these terms and there are several differences between technical and economic guarantees. The main difference between technical and economic is that the reason for the second one is to guarantee a financial payment and the policyholder is usually a vendor or a supplier.
Types of economic guarantees
As we mentioned in the previous point, financial guarantees are requested with the intention of guaranteeing the payment of a certain amount within a set period of time and are divided into two categories: commercial guarantees and financial guarantees.
Commercial guarantee bonds
We will use an example to explain the commercial guarantee.
If a company wishes to buy a certain quantity of its product from a supplier, there are occasions in which the supplier offers payment facilities by offering to split the payment of its products in several instalments. In return, the supplier will request a commercial guarantee from his customer, thus ensuring that the debt will be collected in case the customer does not fulfil the obligation, that is. the payment of the invoice.
Financial guarantee bonds
The financial guarantee consists of guaranteeing the payment of a debt contracted for a loan or with another financial institution. This type of guarantee is usually required when applying for a loan or bank credit. By presenting this financial guarantee, the bank ensures the collection of payments.
All types of guarantees for companies
Once the difference between a technical guarantee and a financial guarantee has been explained, here are some of the types of surety insurance we can offer you:
- Guarantees for public tenders.
- Tax deferment.
- Guarantees for customs agents or import companies.
- Guarantees for connection points to the electricity grid.
- Quantity bonding insurance.
- Environmental guarantee.
- Surety between private companies.
- Guarantees for security companies.
- Guarantees for online gaming licences.
- Surety for real estate agents.
Cost of technical guarantee
The main drawback for companies when applying for a surety is its cost. Thanks to the advantages of surety insurance, companies can see how their financial capacity is not altered. The main advantage of the technical guarantee or surety insurance as an alternative to the bank guarantee is that the cost is considerably lower than that of conventional bank guarantees.
Advantages of contracting technical sureties with surety insurance
Among other advantages, the application for technical guarantees through surety insurance does not generate extra costs such as cancellation or maintenance. Furthermore, no pledging of funds by the company is required, whereas banks may request the immobilisation of up to 100% of the requested guarantee.
And one of the most important advantages is that, when applying for a guarantee by means of surety insurance, the credit capacity will not be affected. This makes it possible to apply for any other loan with the bank. In addition, it does not compute in CIRBE, which frees the company from reducing the consumption of its credit line.
There is another type of guarantee with an international character: international sureties. We usually offer international surety insurance for guarantees for companies that operate practically all over the world.
Apart from Europe, where we operate in most countries, we have a strong presence in Latin America and Africa.
Apply for your technical guarantee with the Surety Insurance
Surety & Bones is an expert Surety division of Viafina Insurance Brokers. Thanks to this experience in technical guarantees, we can provide you with a proposal within 48 hours. This will accelerate your business activity and make applying for a guarantee for your company with a quick and efficient process.
If your company needs to present a technical or economic guarantee, contact us and our Surety & Bonds technical specialists will inform you without obligation.