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Guarantee commission is charged on value for the tenor, rounded up to whole quarters. The often-ignored second cost is the cash margin the bank blocks, which earns little and represents real opportunity cost at around 6% a year.
Guarantee cost
Commission = value × rate × quarters×3/12; plus opportunity cost on blocked margin
Figures are estimates. Lenders apply their own rounding, fees and eligibility rules, and rates change. This is not financial advice — confirm the numbers with your lender.
It reduces the bank's loss if the guarantee is invoked and the applicant cannot reimburse.
Usually only in part, and only once the original guarantee document is returned and the beneficiary confirms release.