How a bank guarantee can help your business grow
Our Backing Business magazine paints a picture of how a small business can use a bank guarantee to grow. From reimbursing buyers to renting workspaces, learn how business banking helps support all kinds of ventures – including creative work.
What’s in this article
- Understanding a bank guarantee and its role in business growth
- Using cash security to support your bank guarantee
- Different types of bank guarantee for different business needs
- Managing cash flow with the help of a bank guarantee
In the world of business, trust and cash security are important. Are you renting a space, starting a job, or offering services that need early proof of payment? A bank guarantee can help everyone feel more at ease.
1. What is a bank guarantee?
A bank guarantee is a promise from a financial institution to help cover a payment if your business can’t. It also acts as support for your business partners in a deal. Instead of paying a large deposit or an upfront fee, the bank gives a written promise that the money will be paid if needed.
Usually, a bank guarantee is backed by money or other assets like a residential property. You don’t need to pay the full amount right away. The funds are usually held in a savings account, and you may need to pay a service fee. If all goes well, the guaranteed payment isn’t used and the original bank guarantee just ends when the bank guarantee expires. But if something goes wrong, the beneficiary can make a claim to get the money.
For example, if you rent a commercial space, the landlord might want a bank guarantee instead of a cash bond. This way, your funds stay available for running your business and your landlord gets peace of mind.
Why is it important?
A bank guarantee offers several benefits for businesses:
- Improved cash flow – By not tying up funds in deposits or bonds, you can use your cash for other business needs.
- Enhanced credibility – A bank guarantee from a reputable bank can attract potential business partners.
- Flexibility – Bank guarantees can be tailored to suit various business scenarios, from commercial leases to service contracts.
2. How does a bank guarantee work with cash security?
When you apply for a bank guarantee, the bank usually asks for cash security to support it. At Westpac, this often means placing money in a Term Deposit. This helps show the bank you’re serious about the agreement. The money stays in the account while the bank guarantee is active, and it can still earn interest.
If the bank guarantee is approved, the bank gives you a paper document – the official bank guarantee. You hand this to the beneficiary. It acts like a promise that they’ll get a guaranteed amount if something goes wrong.
If no claim is made by the time the bank guarantee ends, there’s no need for further action. Your cash security is released and the money in your term deposit becomes available again. But if a claim is made, the bank pays the guaranteed amount to the beneficiary.
Can a bank guarantee help with your business loan?
The answer is yes! A bank guarantee can help when you apply for a business loan. It shows that you're prepared and serious about your business purposes, which may help when applying for finance, negotiating better terms, or managing risk in larger transactions. Just make sure you know how long your bank guarantee is valid for and if another bank guarantee will be needed.
3. Types of bank guarantees
Bank guarantees can be used in different business contexts, such as:
- Lease or rental bonds – Instead of a cash deposit, landlords may accept a bank guarantee as security for commercial leases
- Contract performance – It helps assure clients or partners that you'll fulfill the terms of a contract, such as completing a project on time
- Security deposit bonds – You can use it in situations where a deposit is required to secure services or goods.
Flexible options
We can help you tailor a bank guarantee to suit your business needs and transaction requirements.
- Minimum amount – From $5,000, making it accessible for different business sizes
- Flexible terms – Choose an expiry date that aligns with your contractual obligations
- Interest-earning security – Funds held as security in a Term Deposit earn interest
- Dedicated support – A team of specialists will guide you through the application process
Managing your bank guarantee
No matter what type of bank guarantee you get, it’s important to manage it effectively. Keep in mind the following:
- Expiry – Ensure the expiry date aligns with your contract's end date. Once expired, the bank guarantee is no longer valid and the security can be released
- Cancellation – If the bank guarantee is no longer needed, you may need to return the original document to the bank for cancellation
- Claims – Only the beneficiary can make a claim, and they must present the original guarantee document
If the original bank guarantee document is lost, please contact the bank for next steps.
4. Keep cash flow moving with a bank guarantee
Having good cash flow is important, especially when you’re dealing with big business transactions. Instead of paying a large cash bond upfront, like for a lease or contract, your money can stay available for everyday costs if you use another asset like property as security .
Because your cash isn’t locked away in a traditional deposit or bond, your business can stay flexible. You can use the money to pay suppliers, grow your operations, and handle surprise expenses. In addition, you could use invoice finance to help boost cash flow and keep a business overdraft in place as backup for day-to-day expenses.
Ultimately, a bank guarantee helps support your finances and keeps your working capital free. If you understand how it works and use it well, it can help your business grow.
How one art expert used a bank guarantee to jumpstart his business
When Sydney art conservator Kim Vernon took over the studio where he used to work, he knew he'd need more than specialist knowledge to get started. He also needed a way to secure the lease on the space.
In our Backing Business magazine, we share how Vernon Studios – now a growing art conservation and restoration business in Alexandria – used a Westpac bank guarantee to meet a landlord's bond requirements and take the next big step. For Kim, it was a practical way to lock in the space he needed without tying up all his savings. Using a bank guarantee proved a straightforward alternative to a traditional rental bond.
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Whether you’re a sole trader, running a family business, or leading a growing team, your time matters and your financial situation is unique – which is why we’ve made a business banking magazine you could read when it suits you and come back to all year round.
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We’d love to hear what you think – and what you’d like us to cover next. We want to help you thrive and we’re excited to share your stories. If you’d like to be part of our next edition of Backing Business, be sure to let your banker know.