A contractor can have a signed contract, a viable project and a clear path to future revenue, yet still be unable to start because its bank will not increase the guarantee facility needed to provide performance security. This is a common financing constraint for business owners, managing directors, project sponsors and entrepreneurs with active construction, infrastructure, engineering or supply contracts. When existing banking capacity is fully committed, the solution may not be to abandon the project or wait indefinitely for a higher limit.
Performance guarantee options for contractors can include alternative Bank Guarantee structures, Standby Letters of Credit and, where appropriate, broader project financing. Bear Capital Ventures Limited helps businesses assess these requirements and structure financing solutions around the actual contract, security requirement, project and funding need.
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Why a Bank May Not Increase Your Guarantee Facility
A Bank Guarantee facility is normally subject to a defined credit limit and the bank’s assessment of the company’s overall exposure.
A contractor may reach that limit because existing guarantees are already outstanding, additional collateral is required, the bank is unwilling to increase its exposure, or the company’s current facility no longer matches the size of its contracts.
This can become particularly difficult when a new contract requires a substantial performance guarantee before mobilisation or payment can begin.
The important point is that a full guarantee facility does not necessarily mean the underlying project cannot be financed. It means the contractor needs to examine the available security and financing structure.
What are the Performance Guarantee Options for Contractors?
The right option depends on the contract, beneficiary, jurisdiction, guarantee amount and the contractor’s financial position. There is no single instrument that works for every project.
1. Increase or restructure the existing facility
The first option is to establish whether the existing Bank Guarantee facility can be increased, restructured or supplemented.
This may be suitable where the contractor’s banking relationship can support additional exposure. However, if the facility has reached a firm credit or collateral limit, this approach may not provide the required capacity within the project’s timeframe.
2. Arrange an alternative Bank Guarantee
Where additional guarantee capacity is required, an alternative Bank Guarantee structure may be considered.
This requires careful assessment of the beneficiary’s requirements, issuing arrangements, guarantee wording, amount, validity and applicable jurisdiction. The objective is not simply to obtain a guarantee, but to arrange an instrument that satisfies the contractual security requirement.
Bear Capital Ventures Limited can assess the transaction and help determine whether a suitable Bank Guarantee structure may be arranged.
3. Consider a Standby Letter of Credit
A Carta di credito di riserva may provide another route where the beneficiary and contract permit this form of security.
For an eligible transaction, it can provide credit support without relying solely on the contractor’s existing guarantee facility. However, acceptance should never be assumed. The contract or tender should first be checked to determine whether a Standby Letter of Credit is acceptable and what specific terms apply.
For international projects, additional considerations can include the governing law, currency, payment terms and the requirements of the beneficiary.
4. Combine guarantee and project financing
Sometimes the performance guarantee is only one part of the contractor’s financing problem.
A project may require funding for equipment, materials, labour, mobilisation and other costs before the contractor receives substantial project revenue.
In that situation, arranging security alone may leave the business with a second financing gap.
A broader structure incorporating project finance or working capital financing may therefore be relevant, depending on the project’s economics and contractual cash flows.
Check the Contract Before Choosing the Instrument
A contractor should review the performance-security clause before pursuing an alternative.
Important details include:
- Required guarantee amount and currency
- Validity period
- Claim period and extension provisions
- Required wording
- Whether the security must be payable on demand
- Acceptable types of security
- Requirements concerning the issuer
- Beneficiary and jurisdiction
- Submission deadline
- Any prescribed guarantee format
This step is critical because an instrument can be financially sound but still fail to satisfy the contract.
For example, a contractor may identify an alternative form of credit support, but if the tender specifically requires a particular type of Bank Guarantee or approved issuer, that alternative may not be acceptable.
The Working Capital Problem Behind the Guarantee
For many contractors, the real concern is not simply obtaining the guarantee. It is maintaining enough liquidity to execute the project.
A large guarantee requirement can affect available banking capacity and, depending on the structure, may involve collateral or other security arrangements. Meanwhile, the contractor may need cash to mobilise personnel, purchase materials, pay subcontractors and deploy equipment before receiving project payments.
This creates a difficult situation: the business needs financial capacity to win and perform the contract, but its existing banking facilities may already be heavily committed.
A properly structured financing solution should therefore consider the guarantee and the project’s broader funding requirements together.
Where appropriate, trade finance may help address eligible procurement or payment requirements, while contract financing may be relevant where funding is linked to an underlying commercial contract.
Can a Bank Guarantee or Standby Letter of Credit Help Unlock Project Funding?
Potentially, but the two requirements should be distinguished.
A Garanzia bancaria or Carta di credito di riserva primarily provides financial security or credit support to a beneficiary. It does not automatically provide the contractor with cash to execute the project.
If the contractor needs actual funding before revenue is generated, a separate financing structure may be required.
This is particularly relevant to project sponsors and contractors undertaking substantial contracts where the project has identifiable revenues, contractual payment milestones or other assets that can support financing.
Bear Capital Ventures Limited works with businesses, investors, project developers and trade participants to assess these requirements and structure appropriate financing solutions. Depending on the transaction, financing may be arranged through Bank Guarantees, Standby Letters of Credit, Trade Finance, Working Capital, Project Finance and other structured financing solutions.
Pronto a ottenere un finanziamento?
Discuss your requirements with our specialists and explore a finance structure aligned with your objectives.
What Does a Financing Assessment Usually Require?
A serious assessment should begin with the transaction rather than a generic application.
A contractor should be prepared to provide:
- The tender or executed contract
- Performance guarantee requirements
- Guarantee amount and currency
- Beneficiary information
- Required wording and validity
- Project location and description
- Contract value
- Expected project revenues and payment schedule
- Company profile and ownership information
- Available financial information
- Existing guarantee commitments
- Current financing requirements
- Required funding amount and timing
These details help establish whether the requirement is primarily a guarantee-capacity issue or whether the project also requires broader financing.
Where Bear Capital Ventures Limited Can Help
Bear Capital Ventures Limited is particularly relevant where a business has a specific transaction but its existing financial capacity does not fully meet the requirement.
Rather than treating the guarantee as an isolated product, Bear Capital Ventures Limited assesses the underlying project, contract, security requirement, funding need and proposed financing structure.
Working with established banking and financial institutions, Bear Capital Ventures Limited helps clients identify suitable financial solutions and connect their requirements with appropriate financing structures.
For a contractor facing an insufficient guarantee facility, this may mean assessing whether a Bank Guarantee or Standby Letter of Credit can provide the required security. Where the project also requires funding before revenue is generated, the assessment can extend to Project Finance, Working Capital, Trade Finance or other structured financing solutions.
Financing may be arranged through Bear Capital Ventures Limited where the transaction meets the applicable requirements and a suitable structure is available.
Have a Live Contract but Not Enough Guarantee Capacity?
If your bank has declined to increase your guarantee facility, do not assume that the project has to stop.
Start with the actual requirement: What security does the contract demand, when is it required, and what funding does the project need before it generates revenue?
Bear Capital Ventures Limited can assess the requirement and explore whether a Bank Guarantee, Standby Letter of Credit or broader financing structure may be appropriate.
If you have a live tender, awarded contract or project requiring performance security, contact Bear Capital Ventures Limited with the contract or tender, required guarantee amount, deadline and project funding requirement. Providing these details allows the financing requirement to be assessed on its actual commercial merits and helps identify the most appropriate available financing route.
FAQs About Performance Guarantee Options for Contractors
1. What can I do if my bank will not increase my guarantee facility?
You can investigate whether the existing facility can be restructured or whether an alternative Bank Guarantee or Standby Letter of Credit structure may be available. The contract should first be checked to establish which forms of security the beneficiary will accept.
2. Can a Standby Letter of Credit be used instead of a performance guarantee?
It may be possible if the contract or beneficiary accepts a Standby Letter of Credit and the proposed instrument meets the required terms. Acceptance, wording, issuer requirements and applicable law should be confirmed before proceeding.
3. Can I obtain a performance guarantee without increasing my existing bank facility?
Potentially. An alternative Bank Guarantee arrangement or Standby Letter of Credit may provide another source of guarantee capacity, subject to transaction assessment and the requirements of the beneficiary.
4. Can the same financing structure provide both a guarantee and project funding?
Potentially, but a guarantee and project funding serve different purposes. A contractor may require both performance security and funding for mobilisation, materials, equipment or other project costs before receiving revenue. These requirements can be assessed together.
5. Can Bear Capital Ventures Limited help if my project needs financing before generating revenue?
Yes. Bear Capital Ventures Limited works with businesses, investors and project developers to structure and arrange financing solutions around specific transactions. Depending on the project and applicable requirements, this may include Bank Guarantees, Standby Letters of Credit, Project Finance, Working Capital, Trade Finance or other structured financing solutions.
Written by Bear Capital Ventures Limited
Bear Capital Ventures Limited specializes in educational content covering global finance, trade finance solutions, corporate funding, financial instruments, and international capital markets. We provide insights into structured finance solutions, Bank Guarantees, Standby Letters of Credit and business funding strategies for organizations exploring global growth opportunities.