What are Corporate Credit Cards? – Different Types of Cards
February 12, 2025
Harshad Mehta was the son of a peon. He was born in abject poverty and when he migrated to Mumbai, he had a mere Rs 40 i.e. less than $1 in his pocket. However, over the years Harshad Mehta rose meteorically to become one of the most influential and powerful brokers on the Bombay Stock […]
Just like we have the single stage Free Cash Flow to the Firm (FCFF) model, we also have the Free Cash Flow to Equity model. This model also is not used by analysts in advanced calculations. Rather it is used for the most rudimentary back of the envelope calculations for deriving the equity valuation of […]
Sporting franchises are also business organizations that operate just like other business entities. Therefore, just like other business entities sports franchises also require debt in order to fund their business. There have been various institutions such as banks and private equity firms that can provide these required loans to sporting franchises. Prima facie, it may […]
Deutsche Bank which, which was once a dominant German financial institution has now become extremely fragile. This German bank managed to make it past the great recession of 2009. However, the bank has been facing one challenge after another ever since the recession got over. At the present moment, the bank is functional and solvent. […]
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In the previous article, we have already studied what bank guarantees are and how these bank guarantees are provided by a commercial bank as a value-added service to their corporate customers. We are also aware of the various types of bank guarantees as well as their purposes. In this article, we will understand some of the pros and cons which are associated with bank guarantees.
Commercial banks provide bank guarantees to a large number of corporate clients. These bank guarantees provide significant revenue to commercial banks. These guarantees are available to corporate customers because of some benefits. An indicative list of some of these benefits has been mentioned below:
Banks generally charge anywhere between 0.5% to 1% of the amount that they guarantee. Thus, the transaction costs are low and not an impediment to the overall conduct of business. These lower costs enable companies to produce goods and services at a better price.
Since no advance payments are required, the working capital requirement is reduced and this positively impacts the overall cost of capital. Hence the cost of operations for the business is lowered because of better cash flow management which is made possible by bank guarantees.
There are certain disadvantages that are associated with bank guarantees as well. It is important for corporations as well as commercial banks to understand these cons before making any final decision.
In such countries, there are too many regulatory hassles for obtaining bank guarantees. Hence, banks are not willing to offer their guarantees in such countries and even corporations refrain from availing of them.
After all the points are considered, one can say that bank guarantees provide more advantages than disadvantages. This is the reason why they are extremely popular amongst the business community in most parts of the world.
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