Bank Guarantee (BG) is an agreement between 3 parties viz. the bank, the beneficiary, and the applicant. The beneficiary is the one to who takes the guarantee. And the applicant is the party who seeks the bank guarantee from the bank. BGs are an important banking arrangement and play a vital role in promoting international and domestic trade.

Standby Letter of Credit (SBLC) refers to a legal document where a bank guarantees the payment of a specific amount of money to a seller if the buyer defaults on the agreement. An SBLC acts as a safety net for the payment of a shipment of physical goods or completed service to the seller, in the event something unforeseen prevents the buyer from making the scheduled payments to the seller. In such a case, the SBLC ensures the required payments are made to the seller after fulfilment of the required obligations. When setting up an SBLC, the buyer’s bank performs an underwriting duty to verify the credit quality of the buyer. Once the buyer’s bank is satisfied that the buyer is in good credit standing, the bank sends a notification to the seller’s bank, assuring its commitment of payment to the seller if the buyer defaults on the agreement. It provides proof of the buyer’s ability to make payment to the seller.

Risk-weighted assets (RWA) is a banking term that refers to an asset classification system that is used to determine the minimum capital that banks should keep as a reserve to reduce the risk of insolvency. Banks face the risk of loan borrowers defaulting or investments flatlining, and maintaining a minimum amount of capital helps to mitigate the risks.

The different classes of assets held by banks carry different risk weights, and adjusting the assets by their level of risk allows banks to discount lower-risk assets. For example, assets such as debentures carry a higher risk weight than government bonds, which are considered low-risk and assigned a 0% risk weighting.

Advance Payment Guarantee (APG) provide protection to the Buyer when an advance or progress payment is made to the Seller prior to completion of the contract. The Bonds undertake that the Seller will refund any advance payments that have been made to the Buyer in the event that the product is unsatisfactory. This is typical in large construction matters where a contractor will purchase high-value equipment, plant or materials specifically for the project. The bond will protect in the event of failure to fulfil its contractual obligations e.g., due to insolvency. They will usually be on-demand bonds, meaning that the value set out in the bond is immediately paid on a demand, without any need for preconditions to be met. This is in contrast to a conditional bond where there is only liability if there is a breach of contract (or certain event has occurred as set out in the bond).

Bank confirmation letter (BCL) is a letter from a bank or financial institution confirming the existence of a loan or a line of credit that has been extended to a borrower. The letter officially vouches for the fact that the borrower—typically an individual, company, or organization—is eligible to borrow a specified amount of funds for a specified purpose. A bank confirmation letter's purpose is to assure a third party, generally a seller, that the borrower has access to sufficient financial resources to complete a transaction, such as the purchase of goods. The confirmation letter—sometimes known as a comfort letter—is not a guarantee of payment, but only an assurance of the borrower's financial resources to make payment.

A bid bond guarantees compensation to the bond owner if the bidder fails to begin a project. Bid bonds are often used for construction jobs or other projects with similar bid-based selection processes. The function of the bid bond is to provide a guarantee to the project owner that the bidder will complete the work if selected. The existence of a bid bond gives the owner assurance that the bidder has the financial means to accept the job for the price quoted in the bid. Bid bonds ensure that contractors can comply with bid contracts and will fulfil their job responsibilities at agreed prices. Most public construction contracts require contractors or subcontractors to secure their bids by providing bonds that serve as a means of legal and financial protection to the client.