A large contract can create a difficult financing gap: the buyer, project owner, government authority, or international counterparty may require a performance guarantee before work can begin, while the contractor’s existing bank may not have enough guarantee capacity, collateral, or appetite for the required amount. A business can therefore have a valuable contract, experienced management, and a credible project but still be unable to proceed until the required performance security is in place. The immediate question is not simply what a performance guarantee is, but how to obtain a suitable guarantee that satisfies the beneficiary and allows the business to move forward with the contract.
For businesses in this position, the guarantee should be considered as part of the wider contract-financing strategy. The performance guarantee addresses a contractual security requirement; it does not automatically provide the working capital needed to execute the project. A contractor may therefore need to arrange guarantee capacity alongside trade finance, working capital, purchase-order financing, project funding, or other financial solutions.
Why Do Large Contracts Require a Performance Guarantee?
A performance guarantee provides the beneficiary with financial protection connected to the applicant’s contractual obligations.
In international commercial transactions, a demand guarantee can support obligations connected with areas such as construction, delivery, and other forms of contractual performance. ICC’s guidance on demand guarantees describes their use across international trade and industry, including construction, project finance and trade finance.
For a project owner, this can provide an additional layer of protection against specified contractual risks.
For a contractor, providing the required guarantee can demonstrate that the financial-security requirement of the contract has been addressed.
Typical applications include:
- Construction contracts
- EPC contracts
- Infrastructure projects
- Energy projects
- Government procurement
- Engineering contracts
- Manufacturing agreements
- International supply contracts
- Large equipment contracts
- Public infrastructure programs
The guarantee does not replace the underlying contract. It is a separate financial undertaking whose terms determine how the beneficiary can make a demand.
When Does a Business Need a Performance Guarantee?
The requirement often appears at a critical stage of the commercial process.
A contractor may receive a letter of award or sign a contract containing a requirement to provide performance security within a specified period.
The commercial opportunity may therefore exist, but execution depends on satisfying the security requirement.
After Contract Award
A project owner may require performance security before issuing a notice to proceed.
During Tendering
Some procurement processes require bidders to demonstrate that they can provide the required security if selected.
Before Mobilization
A contractor may need to provide security before receiving site access or commencing work.
For International Contracts
An overseas buyer may require a guarantee from an acceptable financial institution before allowing the contractor to proceed.
For EPC Projects
Engineering, procurement and construction contracts can involve significant performance-security requirements because project owners have substantial exposure to delays, incomplete work, and contractor default.
Start With the Beneficiary’s Requirements
One of the most important steps is to understand exactly what the beneficiary requires before approaching a financial provider.
A business should obtain the applicable contract clause, tender requirement, guarantee template, or other instructions and identify the precise specifications.
Key points to establish
- Guarantee amount
- Currency
- Applicant
- Beneficiary
- Issuing institution requirements
- Validity period
- Effective date
- Expiry date
- Governing law
- Applicable rules
- Demand requirements
- Required wording
- Delivery method
- Amendment requirements
- Confirmation requirements, if applicable
These details can materially affect the structure.
For international demand guarantees, ICC Uniform Rules for Demand Guarantees (URDG 758) may be incorporated into the guarantee. Importantly, URDG 758 does not automatically apply to every guarantee simply because it is an international transaction. ICC states that the rules apply when a demand guarantee or counter-guarantee expressly indicates that it is subject to them.
This distinction matters when reviewing a proposed guarantee.
How to Obtain a Performance Guarantee
The exact process depends on the applicant, transaction, issuing institution, beneficiary and guarantee structure. However, businesses can approach the process through several practical stages.
1. Establish the Underlying Contract
The starting point is the commercial transaction.
A provider needs to understand:
- What is being delivered?
- Who is the beneficiary?
- What is the contract value?
- What is the guarantee amount?
- What is the project timeline?
- Why is the guarantee required?
- What obligations does the guarantee support?
A genuine underlying transaction provides the commercial context needed for proper assessment.
2. Confirm the Beneficiary’s Requirements
Obtain the exact requirements from the project owner, buyer, government authority, or other beneficiary.
Do not rely on a generic guarantee template if the contract specifies particular wording or issuer requirements.
A guarantee that does not meet the beneficiary’s requirements may fail to solve the original problem.
3. Prepare the Application Package
The financial assessment can require corporate, financial and transaction documentation.
Depending on the structure, information may include:
- Corporate registration documents
- Ownership information
- Director information
- Corporate profile
- Financial statements
- Banking information
- Underlying contract
- Letter of award
- Project information
- Beneficiary details
- Guarantee wording
- Amount and currency
- Required validity
- Information concerning collateral or other financial support
A complete initial package helps the provider understand the transaction and identify potential issues earlier.
4. Assess the Issuer and Guarantee Structure
The beneficiary may have specific requirements regarding the issuing institution.
For an international contract, considerations can include:
- Bank acceptability
- Jurisdiction
- Credit standing
- Currency
- SWIFT capability
- Governing rules
- Confirmation
- Delivery mechanism
The most suitable guarantee is not necessarily the one that can be issued fastest. It needs to satisfy the commercial requirement and be acceptable to the intended beneficiary.
5. Review the Guarantee Wording
The wording deserves careful attention.
The amount, expiry, demand requirements, applicable rules and presentation provisions can determine how the instrument operates.
Where URDG 758 is incorporated, the rules provide a framework covering matters including issuance, presentation, requirements for demand, examination, payment, reduction and termination.
For significant transactions, legal counsel may also need to review governing law and contractual implications.
6. Complete Due Diligence and Compliance
Large international transactions generally require appropriate identification, ownership verification, transaction screening and other compliance procedures.
The applicant may need to provide information concerning:
- Business activities
- Ownership
- Contract counterparties
- Transaction purpose
- Source of funds
- Project location
- Beneficiary
- Financial position
A legitimate financial process should clearly explain the documentation and assessment requirements.
7. Issuance and Delivery
After the required assessment, approvals and conditions have been completed, the guarantee can proceed toward issuance and delivery through the agreed financial or banking channels.
The beneficiary should then be able to verify the instrument through the appropriate process.
What Are the Performance Guarantee Requirements?
There is no universal checklist that applies to every transaction.
Requirements can vary according to:
- Guarantee amount
- Applicant profile
- Project
- Jurisdiction
- Issuing institution
- Beneficiary
- Guarantee structure
- Available security or financial support
However, businesses should generally be prepared to provide information in several categories.
Corporate Information
- Incorporation documents
- Ownership structure
- Directors
- Registered address
- Business activities
- Corporate profile
Financial Information
- Financial statements
- Banking information
- Existing obligations
- Revenue information
- Relevant financial history
Contract Information
- Signed contract
- Letter of award
- Term sheet
- Purchase order
- Project documentation
- Beneficiary requirements
Guarantee Information
- Required amount
- Currency
- Tenor
- Effective date
- Expiry date
- Wording
- Governing rules
- Issuer requirements
Project Information
Construction, EPC and infrastructure transactions may require additional information about the project, contractor, delivery schedule, payment structure and contractual obligations.
What If Your Bank Cannot Provide the Required Guarantee?
This is a common problem for businesses pursuing large contracts.
A bank may decline or limit a guarantee request for reasons that do not necessarily mean the underlying project is commercially weak.
For example:
- Existing guarantee limits are already committed.
- The requested amount is too large relative to current facilities.
- Additional collateral is required.
- The project jurisdiction falls outside the bank’s preferred risk profile.
- The beneficiary requires a particular issuing institution.
- Available credit capacity is insufficient.
- The bank does not support the requested structure.
A contractor with a USD 100 million contract can therefore face a financial-security problem even after winning the project.
The appropriate response is not automatically to abandon the contract. The transaction can instead be assessed to determine if another legitimate guarantee or financing structure may be appropriate.
The key is to evaluate the contract, applicant, beneficiary, issuer requirements and overall financial structure together.
The Guarantee Is Only One Part of the Financing Requirement
A performance guarantee addresses contractual security. It does not automatically provide cash to execute the contract.
Consider an EPC contractor that wins a USD 50 million project.
The project owner requires performance security before work begins.
At the same time, the contractor needs funds for:
- Equipment
- Materials
- Subcontractors
- Payroll
- Logistics
- Insurance
- Mobilization
- Project overhead
- Supplier deposits
Securing the performance guarantee solves one contractual requirement, but the contractor can still face a substantial working-capital requirement.
This is why a broader financing assessment can be important.
Trade Finance for Large Contracts
Trade finance for large contracts can help eligible businesses manage the financial cycle surrounding international purchasing and delivery.
For example, an equipment supplier may need to purchase components before receiving payment from the buyer.
Depending on the transaction, trade finance can potentially support:
- Supplier payments
- Import purchases
- Export transactions
- Documentary credits
- Contract-related procurement
- Receivables
- Working capital
The appropriate structure depends on the underlying transaction, counterparties, payment terms and financial requirements.
Working Capital for Contract Execution
A large contract can increase revenue while simultaneously creating a cash-flow gap.
A contractor may need to spend heavily on procurement and labor before receiving milestone payments.
Working capital solutions can potentially help eligible businesses manage:
- Procurement
- Manufacturing
- Payroll
- Inventory
- Logistics
- Supplier obligations
- Contract mobilization
This can be particularly relevant for businesses with strong order books but limited available liquidity.
Purchase Order and Contract Financing
A confirmed purchase order can represent future revenue, but it does not automatically provide immediate cash.
A manufacturer may receive a substantial international order but lack sufficient funds to purchase raw materials and begin production.
Purchase order financing or other contract-financing structures may be considered for eligible transactions.
The buyer’s strength, purchase order, margins, supplier arrangements, delivery schedule and payment terms can all influence financing feasibility.
Performance Guarantees for EPC Contracts
EPC contractors frequently operate with substantial financial requirements because a single project can involve engineering, procurement, construction, subcontracting and extended payment cycles.
A project owner may require:
- Performance guarantee
- Advance-payment guarantee
- Payment security
- Retention security
- Warranty obligations
- Other contractual security
An EPC contractor should examine the entire guarantee requirement early in the project rather than waiting until the final stage.
For larger EPC transactions, performance security may need to fit into a broader financing structure involving working capital and project funding.
Performance Guarantees for Infrastructure Projects
Infrastructure projects can require substantial financial security because projects often involve high contract values and extended execution periods.
Examples include:
- Roads
- Bridges
- Airports
- Ports
- Railways
- Energy facilities
- Utilities
- Water infrastructure
- Telecommunications
- Industrial infrastructure
A project developer or contractor may require several financial instruments across different stages of development.
The performance guarantee can secure contractual obligations, while separate financing may fund construction, procurement and project development.
Performance Guarantees for International Contracts
Cross-border transactions introduce additional considerations.
The beneficiary and applicant may operate under different legal systems, currencies and banking environments.
Before obtaining a guarantee, confirm:
Issuing Institution
Does the beneficiary accept the proposed institution?
Currency
Is the guarantee required in USD, EUR, GBP or another currency?
Governing Rules
Does the contract require a particular framework, such as URDG 758?
Demand Requirements
What must the beneficiary present if a demand is made?
Expiry
Does the expiry date adequately cover the contractual obligation?
Confirmation
Does the beneficiary require confirmation from another financial institution?
Delivery
What banking or electronic channel is required?
These points should be resolved before issuance.
Performance Guarantee vs Bank Guarantee vs SBLC
A performance guarantee is generally intended to provide security for specified contractual performance obligations.
A Bank Guarantee (BG) is a broader category of bank-backed undertaking that can support performance, payment, advance-payment and other obligations.
A Standby Letter of Credit (SBLC) is another independent undertaking that can support payment or other obligations and may also form part of certain financing or credit-enhancement structures.
These instruments are not automatically interchangeable.
The appropriate structure depends on the contract, beneficiary requirements, issuer, applicable rules and transaction circumstances.
Can a Performance Guarantee Support Business Financing?
A performance guarantee should not be confused with working capital.
The guarantee primarily addresses contractual security. However, a major contract can form part of a wider financial structure involving:
- Credit enhancement
- Trade finance
- Working capital
- Purchase order financing
- Project funding
- Import/export finance
For example:
USD 50 million contract
↓
Performance security requirement
↓
Procurement and mobilization costs
↓
Milestone-based customer payments
The financing challenge is therefore larger than the guarantee itself.
A structured assessment can determine which financial requirements need separate solutions and which may potentially be integrated into a broader transaction.
How Much Does a Performance Guarantee Cost?
There is no universal price for every performance guarantee.
Pricing can depend on:
- Guarantee amount
- Guarantee period
- Applicant financial profile
- Issuer
- Jurisdiction
- Project risk
- Beneficiary
- Collateral
- Banking arrangements
- Transaction complexity
Businesses should therefore be cautious about providers advertising a universal fee or guaranteed issuance price before reviewing the transaction.
The underlying contract should be assessed first.
Can a Company Obtain a Performance Guarantee Without Sufficient Bank Capacity?
An existing bank’s limited capacity does not necessarily end the financing discussion.
For eligible transactions, alternative guarantee or financing structures may potentially be explored based on:
- Contract quality
- Beneficiary
- Applicant profile
- Project economics
- Issuer requirements
- Available financial support
- Transaction jurisdiction
- Compliance
- Guarantee structure
The important question is not simply:
“Can I get a guarantee?”
It is:
“What guarantee structure is acceptable to my beneficiary and feasible for my transaction?”
That distinction helps businesses avoid unsuitable instruments and unrealistic financing proposals.
How to Choose a Performance Guarantee Provider
Choosing a provider should involve more than comparing fees.
Businesses should consider:
Transaction experience
Does the provider understand large commercial and international transactions?
Transparency
Are the process, requirements, costs and conditions clearly explained?
Issuer quality
Can the proposed issuing institution satisfy the beneficiary’s requirements?
Documentation
Is there a structured due-diligence process?
Compliance
Are the applicant, transaction and counterparties appropriately assessed?
Commercial understanding
Does the provider understand the underlying contract rather than simply offering a financial instrument?
These considerations are particularly important for large guarantees because an unsuitable structure can delay contract execution instead of solving the original problem.
Practical Example: Securing a Guarantee for a USD 50 Million Contract
Consider an international EPC contractor that has received a USD 50 million infrastructure contract.
The project owner requires a performance guarantee before issuing the notice to proceed.
The contractor approaches its existing bank.
The bank is willing to support the business but does not have sufficient available guarantee capacity for the requested amount.
The contractor now has several distinct requirements:
- Satisfy the project owner’s performance-security requirement.
- Obtain an acceptable issuing structure.
- Meet the beneficiary’s wording and delivery requirements.
- Preserve sufficient liquidity for project execution.
- Finance equipment, materials and subcontractor obligations.
A sensible process would begin with reviewing the contract and guarantee requirements.
The transaction can then be assessed for:
- Applicant eligibility
- Beneficiary
- Contract value
- Guarantee amount
- Project location
- Issuer requirements
- Financial information
- Available security
- Working-capital requirements
- Additional financing needs
The outcome may be a guarantee solution, a broader financing structure, or a determination that additional information or financial support is required before proceeding.
The important point is that the contract should drive the financial structure.
What Happens After the Guarantee Is Issued?
Issuance does not end the business’s responsibilities.
The applicant should monitor:
- Expiry date
- Amendments
- Contract extensions
- Beneficiary requirements
- Reduction provisions
- Release conditions
- Project completion
- Potential claims
Where URDG 758 applies, the rules address various stages of the demand-guarantee lifecycle, including presentation, examination, payment, reduction, termination and expiry.
For a large project, treasury and contract-management teams should maintain a clear record of every guarantee and the contractual obligation it supports.
How Chiron Projects B.V. Supports Businesses With Large Contract Requirements
Chiron Projects B.V. supports businesses, investors, corporations, governments and organizations seeking international financial solutions, with transaction-specific assessment of guarantee and financing requirements.
Depending on the transaction and eligibility, relevant solutions can include:
- Performance Guarantees
- Bank Guarantees
- SBLC solutions
- Trade Finance
- Working Capital Solutions
- Project Funding
- Import and Export Finance
- Supply Chain Finance
- Credit Enhancement
- Structured Finance
- Eligible BG and SBLC financing structures
This can be particularly relevant when a business has a contract but its existing banking relationship cannot provide the required level or structure of financial support.
Each transaction remains subject to assessment, documentation, due diligence, compliance and the requirements of the relevant financial institutions and counterparties.
Common Mistakes When Securing a Performance Guarantee
Waiting Until the Last Minute
A guarantee requirement should be identified during contract negotiation or immediately after award.
Ignoring the Beneficiary’s Wording
A guarantee that does not meet contractual requirements may not be accepted.
Focusing Only on the Guarantee Amount
The issuer, expiry, governing rules and demand conditions can be equally important.
Assuming Every Bank Can Issue the Same Structure
Banking capabilities, risk policies and jurisdictional coverage differ.
Treating a Guarantee as Working Capital
A performance guarantee provides contractual security. It does not automatically provide operating cash.
Assuming Every Instrument Can Be Financed
Financing eligibility depends on the specific instrument, issuer, transaction and structure.
Choosing Solely on Price
The lowest quoted cost is not necessarily the most suitable or acceptable structure for the beneficiary.
Performance Guarantee Preparation Checklist
Before requesting a performance guarantee, prepare:
- Underlying contract or letter of award
- Beneficiary information
- Required guarantee amount
- Currency
- Required validity
- Guarantee wording
- Issuer requirements
- Governing rules
- Corporate profile
- Ownership information
- Financial statements
- Banking information
- Project details
- Contract timeline
- Existing guarantee obligations
- Information concerning available financial support or collateral
Having these details available allows a financial provider to assess the transaction more efficiently.
Frequently Asked Questions
1. How can a company obtain a performance guarantee?
A business normally begins with the underlying contract and the beneficiary’s requirements. Corporate, financial and transaction information is then provided for assessment. An appropriate issuing structure can be considered after due diligence and review of the guarantee terms.
2. What are the main performance guarantee requirements?
Requirements vary, but commonly include corporate information, financial records, the underlying contract, beneficiary details, guarantee wording, amount, currency, validity period and information concerning financial support or collateral.
3. How much does a performance guarantee cost?
Pricing depends on factors such as guarantee amount, tenor, applicant profile, issuer, jurisdiction, project risk and security arrangements. There is no universal rate applicable to every transaction.
4. How long does it take to obtain a performance guarantee?
There is no standard timeframe. Timing depends on transaction complexity, documentation, due diligence, issuer requirements, beneficiary specifications and the financial structure.
5. Can a performance guarantee be used for an international contract?
Yes. Performance-related guarantees are used in international commerce. The specific instrument must meet the contract and beneficiary requirements, including applicable rules and issuer specifications.
6. Can a performance guarantee be used for an EPC contract?
Yes. EPC contracts can require performance security to protect project owners against specified performance risks. Large EPC projects may also require advance-payment guarantees, working capital and other financial solutions.
7. What can a business do if its bank cannot issue the required guarantee?
A business can investigate alternative guarantee or financing structures based on the contract, beneficiary, applicant, project, issuer requirements and available financial support. Alternative solutions are transaction-specific and are not automatically available to every applicant.
8. Can a performance guarantee support business financing?
The guarantee itself is contractual security rather than working capital. However, a major contract may form part of a broader financial structure involving trade finance, working capital, project funding or credit enhancement, subject to eligibility.
The Guarantee Is Part of the Contract-Financing Strategy
For businesses pursuing large contracts, obtaining a performance guarantee can be essential to moving from contract award to project execution.
The process should start with the contract, not with a financial product.
First, establish exactly what the beneficiary requires. Then determine the guarantee amount, issuer requirements, wording, validity, applicable rules and delivery mechanism. From there, assess the applicant’s financial position and determine how the guarantee fits alongside the working capital and financing required to perform the contract.
For some businesses, the existing bank can provide everything required. For others, guarantee limits, collateral requirements, jurisdictional restrictions or transaction size can create a gap. In those situations, an alternative financial structure may need to be assessed.
A performance guarantee provides contractual security; it does not automatically create working capital or financing. A large contract may therefore require a coordinated approach involving guarantee capacity and separate financing for procurement, mobilization, project execution or international trade.
Chiron Projects B.V. supports international businesses and organizations seeking performance guarantees, Bank Guarantees, SBLC solutions, trade finance, working capital, project funding and other structured financial solutions.
If your business has a large contract and needs performance security to proceed, the appropriate starting point is a confidential assessment of the transaction, contract requirements and financial objectives.
Contact Chiron Projects B.V. using the form