Clearly, the regimes, Basel/banks vs solvancy/insurers, have contributed to the increase in providers. After all, the solvency requirement of guarantees for banks is higher than for insurers. At a time when working capital is an important factor for healthy business, not deducting a facility from the credit facility is an excellent solution.
There are a number of things to consider when choosing a provider that best suits your business.
These include:
- Does this party issue local or international guarantees;
- What is the range of guarantees;
- What is the scope of a possible facility;
- Where is the decision-making power of the relevant provider;
- What is the number of guarantees you need to make per year;
- What is the behaviour of the guarantee provider?
1. Does this party provide local or international guarantees?
If you want to issue guarantees worldwide, it is a good idea to establish whether the provider in question also has branches worldwide to issue guarantees locally, if necessary. In some countries, it is a legal requirement that this is done by a local party. If the provider does not offer this service, then the cost of a warranty will go up because they will have to engage a so-called "fronter". This is a local party that issues the guarantee on behalf of the provider and, of course, also charges for this.
2. What is the range of guarantees?
There are different forms of guarantees:
- Prepayment bonds (pre-payment bonds);
- Performance bonds (performance bonds);
- Maintenance bonds;
- Customs guarantees;
- Rent guarantees;
- Completion guarantees;
- Etc;
Most providers have the ability to provide the standard guarantees. They also have the expertise to assess a requested guarantee. However, each provider again has its own speciality.
3. What is the scope of a possible facility?
Insurers generally provide a facility and on rare occasions they even issue individual guarantees. Because providing and maintaining a facility involves the necessary costs (think annual revision), providers have requirements regarding the minimum size. This varies from provider to provider, but the minimum amount is easily €1.5 to €2 million, and even higher.
4. Where does the decision-making authority of the relevant provider lie?
If a facility has been provided but you want to amend it because it is no longer adequate, it is convenient that the relevant provider can make a quick decision. This decision-making power lies differently with each provider. For instance, there are providers where this power lies with the department (in NL), with other providers with a credit committee and some providers have to fall back on the head office abroad. Clearly, it does not promote speed if the authority is further away.
5. What is the number of guarantees to issue uper year?
Obviously, the more guarantees you have to issue per year (hundreds per year in some cases), the more automation comes into play. Does a provider have an online system where they can log the guarantees, or do they have to report each request manually by mail?
6. What is the behaviour of the guarantee provider?
As we mentioned earlier, a good number of providers have entered the market in recent years. Meanwhile, some have also left again or moved their activity to their headquarters abroad. Is a provider hhonour to stay or a stop ofar? In other words, what are the provider's intentions regarding presence in the Dutch market? As a result, they may confront you as a company with a contact abroad with whom they have no connection, or they may cancel the facility.
Further, there are providers who strictly apply a company's rating when providing or maintaining a facility. And who look less or not at a company's prospects. In practice, if the rating deteriorates, this often leads to a cancellation of the facility. This is precisely something that looks bad in a more difficult period.
All these above are important to come to the right decision on which provider to go with.
More information?
Xolv has the knowledge and experience to help you make the right decision. If you have any questions, Xolv's specialists are of course ready to advise you on the most suitable provider.
