Default
- Collateral secures guarantee-issuer if borrower fails to repay lender.
- Default occurs when borrower fails, for any reason, to repay lender in accordance with the loan agreement.
- If borrower defaults, the Lender's bank recovers monies due by executing a “draft” (check) against the guarantee.
- Default on a payment(s) due may not necessarily result in demand by the Lender for immediate full loan repayment. This is subject to negotiation between the Lender's bank, borrower, and guarantee-issuer.
- The Lender's bank’s right to execute draft for recovery of any deficiency amount is an integral part of the guarantee.
- Payment of draft to the Lender's bank is irrevocable and unconditional under guarantee.
- Draft is executed only if borrower fails to repay the Lender's bank.
- In a default, borrower may repay guarantee-issuer out of its pledged collateral or other resources for deficiency amount.
- The Guarantee is a contingent liability for the guarantee-issuer.
- The Guarantee is neither a loan
nor a deposit for a guarantee-issuing bank. It is listed as a footnote
on the bank’s balance sheet.
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