Banky team Reviewed editorial answerA letter of guarantee is a final written undertaking issued by the bank at the request of its customer (the contractor or the supplier), under which the bank commits to pay a specified sum of money to the beneficiary (such as a government entity or a company) if the customer fails to carry out the terms of the agreed contract.
It has three parties: the customer (the applicant), the bank (the guarantor), and the entity that owns the project (the beneficiary).