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A demand guarantee is a type of financial guarantee provided by a bank or financial institution that ensures the beneficiary will be paid a specified sum if the principal (the party requesting the guarantee) fails to meet their contractual obligations. Unlike traditional guarantees, a demand guarantee is payable upon the beneficiary's first demand without the need to prove the default. This makes it a fast and reliable way for beneficiaries to secure payment in case of non-performance or breach of contract. Demand guarantees are widely used in international trade, construction, and project financing, where the risks of non-performance or default are high.
A contractor might provide a demand guarantee to a client, ensuring payment in the event that the contractor fails to complete a construction project on time.
• Payable on first demand without proving default.
• Common in international trade, construction, and finance.
• Provides security and mitigates the risk of non-performance.
A demand guarantee is payable immediately upon request, while traditional guarantees require proof of default or breach before payment is made.
They provide quick and reliable security, ensuring payment even in cases of disputes or non-performance.
Contractors, exporters, and service providers often request demand guarantees to assure their clients of payment security.
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