How to Get Bank Guarantee or Bid Bond in Nigeria

A bank guarantee and a bid bond are financial instruments used in business and contracting transactions to provide assurance to another party. They are especially relevant to companies participating in tenders, procurement exercises, construction contracts, supply agreements and other commercial arrangements.

Although the terms are sometimes used interchangeably, a bank guarantee and a bid bond are not necessarily identical. The exact instrument required depends on the tender document or contract. A company should therefore read the beneficiary’s requirements carefully before asking a bank to issue one.

What Is a Bank Guarantee?

A bank guarantee is an undertaking issued by a bank in favour of a beneficiary. Subject to the terms of the guarantee, the bank agrees to make payment if the conditions for calling the guarantee are met.

The bank is effectively providing a level of financial assurance based on the customer’s obligations and the bank’s approved facility structure.

What Is a Bid Bond?

A bid bond is associated with a tender or procurement process. It gives the procuring organisation assurance that the bidder is serious about its offer and will comply with the applicable tender conditions.

The exact wording, amount, validity period and conditions are determined by the tender documents.

Why Do Companies Need Them?

A tender may require bidders to provide a guarantee before their submissions can be considered. A successful bidder may subsequently need a performance guarantee or another form of security.

Without the required instrument, an otherwise qualified business can have difficulty satisfying the tender’s administrative requirements.

Common Types of Bank Guarantees

• Bid bond or tender guarantee.
• Performance guarantee.
• Advance payment guarantee.
• Payment guarantee.
• Retention money guarantee.
• Customs or regulatory guarantees.

The name and legal effect of each instrument depend on its wording and purpose.

How to Get a Bank Guarantee

Step 1: Read the Beneficiary’s Requirement

Identify the exact type of guarantee, amount, currency, beneficiary, validity period and required wording.

Step 2: Approach Your Bank

Contact the bank where your company maintains its business relationship or another bank that provides guarantee facilities.

Step 3: Submit the Application

The bank will request corporate documents and information about the underlying transaction.

Step 4: Credit Assessment

The bank assesses the customer’s financial position, transaction, proposed guarantee, existing facilities and available security.

Step 5: Provide Required Security

Depending on the bank’s assessment and facility structure, collateral, cash cover, credit lines or other forms of security may be required.

Step 6: Issuance

After approval and completion of the required documentation, the bank issues the guarantee to the beneficiary through the agreed channel.

Documents You May Need

• Guarantee application.
• Tender document or contract.
• Company incorporation documents.
• Board resolution where required.
• Financial statements or management accounts.
• Bank statements.
• Tax information where applicable.
• Details of the beneficiary.
• Evidence of existing banking relationship.
• Collateral or security documentation where required.

The bank may request additional documents depending on the size and nature of the transaction.

What Determines Approval?

Approval is not automatic. The bank may consider the company’s financial strength, account conduct, cash flow, existing debt, credit history, management capacity, contract value and the risk of the transaction.

The bank may also consider whether the beneficiary and underlying transaction are acceptable under its compliance policies.

Bid Bond Example

Imagine a company is submitting a tender for a large supply contract. The procurement document states that each bidder must submit a bid security of a specified amount, valid for a specified period.

The company approaches its bank with the tender document. The bank reviews the request and, if approved, issues the required instrument in the format and favour of the beneficiary specified by the tender.

The company then submits the bank-issued instrument with its tender.

Performance Guarantee

A performance guarantee is different from a bid bond because it is normally connected to the performance of an awarded contract rather than merely participation in the tender.

If a company wins a tender, the contract may require a performance guarantee before work begins.

Advance Payment Guarantee

Where a client pays an advance before a contractor or supplier performs its obligations, the client may require an advance payment guarantee.

The purpose is to provide protection according to the terms of the guarantee if the relevant contractual conditions are not fulfilled.

Costs of a Bank Guarantee

A bank guarantee can involve issuance fees, commissions, legal or documentation costs and other applicable charges. The exact cost depends on the bank, amount, tenor, risk and facility arrangement.

Ask for a complete fee schedule before accepting the facility.

Does a Guarantee Mean the Bank Pays Immediately?

No. The bank’s obligations depend on the exact terms of the instrument. The beneficiary must follow the claim requirements specified in the guarantee.

This is why the wording of the document is extremely important.

What Happens When a Guarantee Expires?

If the guarantee reaches its expiry date without a valid claim or other applicable event, its obligations may end according to the wording of the instrument. The customer should still confirm closure or release with the bank and beneficiary where necessary.

Common Mistakes

• Applying for the wrong type of guarantee.
• Using the wrong beneficiary name.
• Submitting an expired tender document.
• Ignoring the required wording.
• Requesting a validity period shorter than the tender requires.
• Failing to provide adequate security.
• Waiting until the tender deadline.

How to Improve the Application

Start early. Give the bank the full tender or contract document instead of summarising it yourself. Clearly identify the required guarantee amount, currency, beneficiary and expiry date.

Keep your company registration, financial records and banking information current.

Bank Guarantee Versus Bid Bond

Feature	Bank Guarantee	Bid Bond
Purpose	Broad financial assurance depending on instrument	Tender/bidding security
Beneficiary	Contracting or other specified party	Procuring organisation/tender issuer
Timing	Can arise at different contract stages	Usually during bidding
Amount	Specified by transaction	Specified by tender

Frequently Asked Questions

Can a small business get a bank guarantee?

Potentially, subject to the bank’s assessment, facility requirements and security.

Do I need a bank account with the issuing bank?

Many banks prefer an existing relationship, although the exact policy depends on the institution.

Can a guarantee be issued in another currency?

That depends on the transaction, bank and applicable foreign-exchange and regulatory requirements.

How long does issuance take?

There is no universal processing time. Complex guarantees may require credit, legal and compliance review.

Conclusion

Getting a bank guarantee or bid bond begins with understanding exactly what the beneficiary requires. Take the tender or contract to an appropriate bank, submit the company’s documents, complete the credit assessment and provide any required security.

Do not wait until the submission deadline. A guarantee involves legal and financial obligations, so the company should carefully review the wording, amount, beneficiary, validity period, fees and claim conditions before accepting the instrument.