Guarantee Letter – Guide & Sample Letter

A guarantee letter is a document issued by a bank to show the commitment of a customer in buying some goods. In this case, the customer guarantees to meet all the financial responsibilities given by the supplier. It’s important to write a guarantee letter to make sure that all the participants of the contract are covered. The agreement might involve a business that requires a lot of cash.

Due to this, you should write a letter of guarantee to show responsibility and complete ownership of the property. Once you capture all the participants in this letter, you will be able to enjoy the benefits of the agreement.

How to issue a guarantee letter

  • Examination and issue. Once the financial institution receives the customer’s request for a guarantee letter, it should determine whether the customer in question qualifies or not. The financial institution scrutinizes the past transaction records, the underlying transactions, and any other relevant items. Sometimes, the bank can ask the client for some additional documents or information if need be.
  • Fee. Generally, the bank charges a certain fee for offering these services to their customers. The financial institution charges the fee based on the principal amounts and the rates determined by the issuing bank’s system.
  • Modification of the guarantee letter. Before issuing a guarantee letter, the financial institution can make amendments on the request of the supplier or the customer. The modifications made can be about underlying asset, and the validity period, among others.
  • Compensation against the guarantee letter. Once the goods are delivered to the client, the supplier should make a claim for compensation from the guaranteeing financial institution within the set validity period. When the bank receives the claim, it will notify the customer about the request. The financial institution will then assess the claim documents and check if they meet the terms of the clauses of the guarantee letter. If everything is in order, the financial institution will then make the payment to your supplier.
  • Post guarantee management. Once the payment is sent to the supplier of the goods, the bank will then update the account of the customer to show the current changes. It also keeps the guarantee letter and verifies that they reflect the entire transaction. Once the financial institution confirms relief of liability from the guarantee letter, it revokes the promise and then recovers the credit from the customer and then refunds the surplus, if any.

Sample of a Guarantee Letter

DATED: _____________20___

I, ____________________________________________________________

(Individual’s Name)

living in _____________________________________________________________

(the personal address, city, state, and zip code of the individual)

for and in consideration of ____________________________________________________________

(Name of Business Creditor)

extending credit to ______________________________________________________________

(Credit Applicant Company’s Name)

(referred to as the “Company”) in reliance on any guaranty of said credit, I ___________________(Individual’s Name), hereby guarantee that I will undertake the payment of any obligations of the said Company and I agree to commit myself to pay you any sum on demand which might become due to you by the Company on every occasion the Company fails to pay the same. It’s well understood that this guarantee letter shall be an irrevocable and continuing guaranty, and cover for such obligations of the Company. I hereby waive the notice of default, nonpayment and consent to any renewal or modifications of the credit contract hereby guaranteed.

Social Security Number____________________

Signature ______________________________

Name of the Individual ____________________


Witness signature _____________________________

Witness Name_____________________________



Difference between guarantee letter and credit letter

A letter of credit

A letter of guarantee and letter of credit have lots of similarities, but in reality, they mean different things. A credit letter, also called a documentary credit, serves as a promissory note from a bank and it represents a commitment on the side of the financial institution to make payments when the set terms of the agreement have been met. When the bank verifies that the terms are validated, it transfers the money to the executor of these terms. The credit letter is backed by credit or collateral from the customer.

A letter of guarantee

A guarantee letter is similar to a credit letter but with one difference; it pays either the buyer or seller if one of the parties does not fulfill the requirements of the transaction. If the supplier asks for a guarantee letter from the buyer, for instance, but the buyer decides to default on the payments, the seller in question can claim for compensation from the financial institution. Similarly, if the buyer is supposed to pay for the shipment of products before delivery and had requested the supplier for a guarantee letter, the buyer might claim for payment from the bank if all the goods paid for have not been delivered.

Types of guarantee letters

Personal letter of guarantee

This letter shows the individual’s guaranty when a business person obtains funds for their business. The individuals might need to give a personal guarantee, which means that they are personally liable for paying all or some of the outstanding debt in a situation where the firm is unable to do so. A personal guarantee letter contains the following:

  • The name of the individual
  • The address, city, and zip code of the individual
  • Name of the business creditor
  • Name of the credit application company
  • The date the personal guaranty was written
  • Witnesses (Optional)
  • Signatures of all the participants

Guarantee letter sample for product

A product guarantee applies and is limited only to the specified products, their corresponding application purposes and guarantee periods, and the guarantee begins from the date of your purchase as indicated on an invoice. This guarantee letter includes:

  • All products covered by the guarantee
  • Extent of the guarantee
  • Conditions of the guarantee
  • Supplier’s liability
  • Claim process

Financial / loan guarantee letter

A financial guarantee letter is a form of surety underwritten by insurers so that the investors are guaranteed payments of both the principal and interest amounts. A vendor may request a letter of guarantee when there’s a question about the ability of a customer to pay. The bank of the customer can issue the guarantee and also pay the vendor in case the customer defaults. The financial guarantee letter includes:

  • The name of the customer
  • The address, city, and zip code of the customer
  • Name of the vendor
  • Name of the issuing bank
  • The date the financial guarantee letter was written
  • Signatures of all the participants

Supplier letter of guarantee

Supplier guarantees are documents used as a substitute for a purchase order financing. Primarily, the vendor relies on the guarantee and the credit as a factor for the payment of the goods supplied. A supplier guarantee includes:

  • The name of the business
  • The address, city, and zip code of the business
  • Name of the business supplier
  • The date the guarantee letter was written
  • Signatures of all the participants

Guarantee letter for travel

A guarantee letter for travel is used by companies to sponsor their employees when traveling abroad. By doing this, the company or the organization states that they will be financially responsible for the employee while traveling. The agreement includes:

  • The name of the applicant sponsored or employed by the company or organization
  • The earliest possible date of your departure or the approximate date if you might travel at any time
  • The name of the company sponsoring the employee
  • Company’s guarantee of the financial responsibility for the travel expenses and return transportation
  • A closing signature by someone else and not the applicant

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