Bank Guarantee in the UAE: Types, Costs and How to Get One
The main types, how a bank issues one, what it costs, and what to check before you sign.
A bank guarantee sits behind most large contracts, tenders and credit terms in the UAE, yet the process is rarely explained clearly. This guide covers the types, how banks issue one, what drives the cost, and what causes delays.
Types of bank guarantee
| Type | What it protects | Typical use |
|---|---|---|
| Bid or tender guarantee | The buyer, if you withdraw after winning a bid | Tenders and public or large private contracts |
| Performance guarantee | The client, if you do not complete the contract as agreed | Construction and supply contracts |
| Advance payment guarantee | The buyer who pays upfront, if the supplier does not deliver | Projects with a deposit paid before work |
| Retention guarantee | The client, in place of money held back from payments | Construction contracts |
| Financial or payment guarantee | A supplier or landlord, if you do not pay | Credit terms, leases and utilities |
How to get a bank guarantee in the UAE
- Confirm exactly what the beneficiary requires - the type, the amount, the validity date and the wording.
- Check your credit line. Banks typically issue a guarantee under an approved facility, often against a cash margin, other security or a mix.
- Apply with the supporting documents - typically the contract or tender document, trade licence, financial statements and bank statements.
- Agree the wording with the bank and the beneficiary before issue, because a mismatch means a re-issue.
- Pay the fee and collect the guarantee, then track the expiry date.
- Get the original returned or a release letter once the obligation ends.
How much does a bank guarantee cost?
Banks typically charge a fee based on the guarantee amount and the period it stays in force, and may add issuance or amendment charges. The rate depends on your credit standing and what security you provide, so we do not quote a figure: ask each bank for its tariff and a written quote. Cash-backed guarantees tie up your money while the guarantee is live, which is a cost in itself.
Validity, claims and "extend or pay"
A guarantee runs until its expiry date, and the beneficiary can claim within the terms of the wording. A demand guarantee pays on a written demand that matches the wording, while a conditional guarantee needs proof of default. Demand guarantees commonly follow the ICC's URDG 758 rules. Near expiry, a beneficiary may ask you to extend the guarantee or else claim on it, so diarise the dates and agree extensions early.
Bank guarantee vs SBLC vs letter of credit
A standby letter of credit (SBLC) does a similar job to a demand guarantee but is issued under letter-of-credit rules (ISP98 or UCP 600). A documentary letter of credit is a payment tool for trade, not a safety net. Our trade finance guide compares them side by side. Some contracts also accept an insurance-company bond instead of a bank guarantee, so ask the beneficiary what it will accept.
Why guarantee applications get delayed
- No facility or limit to issue against.
- Wording that does not match the beneficiary's requirement.
- A validity period longer than the facility allows.
- Not enough security or an incomplete set of financial statements.
The Central Bank of the UAE sets out rules for bank guarantees in its rulebook.
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About the author
Ajith Prasad is the founder of Fintrust, an independent banking and financial consultancy serving businesses in Dubai and across the UAE, built on 25+ years inside the UAE banking and financial services industry - most recently as Manager of Issuance and Acquiring at Mercury Payment Services LLC, with earlier leadership roles at Standard Chartered, Dunia Finance, Banque Misr, and National Bank of Dubai. Full bio →
Frequently asked questions
A written commitment from your bank to pay a beneficiary up to a stated amount if you fail to meet an obligation, such as completing a contract. Banks typically issue it under a credit facility, often against a cash margin or other security, and charge a fee for the guarantee period.
The common types are bid or tender guarantees, performance guarantees, advance payment guarantees, retention guarantees and financial or payment guarantees. Which one you need is set by the contract.
Banks charge a fee based on the guarantee amount and its period, and may add issuance charges. Rates depend on your credit standing and the security you provide, so ask the bank for its tariff and a quote.
It depends on whether you already have an approved facility. With a facility in place and the wording agreed, issue can be quick. A first-time request needs credit approval and usually takes longer.
A letter of credit pays a seller once compliant documents are presented, so it secures payment for goods. A bank guarantee pays only if you fail to meet an obligation, so it secures performance of a contract.
It is harder without trading history or security. Banks typically ask for a cash margin or other collateral, and some beneficiaries accept an insurance-company bond instead, so ask the beneficiary what it will accept.
Related guides:
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