A bank endorsement is a guarantee through which an endorser (bank) commits to fulfilling an obligation to a third party (beneficiary) on behalf of the endorsed (typically the customer) in the event that the endorsed does not. Frequently, guaranteed obligations consist in the payment of an amount of money, or they can be issued in the guarantee of other obligations (satisfactory termination of a project, supply of a material, participation in bids and tenders).
For the bank, an endorsement assumes a risk in the form of a loan. The difference is that a guarantee does not represent an immediate payment of money by the bank in favor of the recipient of the guarantee, although this could be in the case in the future, if the recipient executes it, i.e., enforces the fulfillment of the guarantee. In this event, the bank, which has fulfilled its obligation before the recipient of the guarantee, will claim this amount from the customer.
So the participating bank commits to fulfilling the obligation to the beneficiary in the event that the customer (endorsed) does not. The fulfillment of the endorsed obligation may or may not be financial in nature.
For the customer (endorsed), having an endorsement enables him/her to meet the beneficiary’s demands required by a commercial relationship (a contract for the purchase or sale of goods, execution or bidding of work, etc.).
In order for a bank to issue an endorsement, the customer (endorsed) must sign a Bank Guarantee Policy in the presence of a notary, or a Limit of Bank Guarantee Policy if the customer is signing a number of endorsements. This governs the relationship between the bank and the endorsed regarding endorsement details (payment of fees, interest and stipulated costs, repayment of the amount paid by the bank as a result of the endorsement, etc.).
Types of endorsements
Financial: Any endorsement in which the bank commits to the payment of a set amount in the event that the endorser does not.
Technical: Those endorsements to which the bank responds in the event that the endorsed has not fulfilled the obligations of different payments. In general, these obligations are held with public bodies or public administrations, but may also be held with third parties. The bank responds against the non-fulfillment of the debtor’s commitments against these third parties, for reasons such as shares in contests or tenders, development of projects, supplies, proper functioning of machinery sold, administrative appeals, etc.
To counter the assumed risk, the bank receives certain fees based on the endorsement term, type and risk it carries. Endorsements can be defined or undefined. Duration is one of the most important aspects of the endorsement since it delimits the temporary validity of the endorsement awarded by the bank.
The most common endorsements are those required for home rental. In these cases, the lessor requests from the lessee a guarantee corresponding to a certain number of monthly payments in order to guarantee the payment of the same in the event that the lessee does not pay.
There is also the figure of a pre-guarantee, through which the bank accepts the commitment to provide a permanent guarantee to the person or company that requests it and in favor of the recipient of the guarantee, provided that the conditions set forth in this commitment are fulfilled, and which, under no circumstance, shall not depend on the will of the bank.