Many businesses miss out on significant growth opportunities because they cannot participate in tenders or undertake multiple projects simultaneously. Why? They lack the necessary capital to secure Guarantee Letters.
The good news? There is a way to obtain guarantee letters without tying up a single euro.
SoEasy Insurance addresses this dilemma through Guarantee Insurance and an innovative program launched in partnership with French company Axeria IARD, part of the Arch Insurance group.
Guarantee Insurance, therefore, offers businesses a reliable alternative to the traditional guarantee letters they have typically secured from banks for public projects.
Which businesses need guarantee letters?
Although guarantee letters are widely used in the construction sector, many other fields can also use guarantee insurance. Let's look at them.
Construction companies and public works
Construction companies represent the largest category of businesses using guarantee letters. Participation in public works tenders requires participation guarantees that typically amount to 2-5% of the project's budgeted value. After the project is awarded, companies must provide a performance guarantee ranging from 5% to 10% of the contract value.
For example, a construction company participating in a project worth 2 million euros will need a participation guarantee of 40,000-100,000 euros and a performance guarantee of 100,000-200,000 euros. Additionally, after project completion, a warranty guarantee is required for a period of up to 2 years.
Companies involved in private construction projects are often required to provide advance payment guarantees when receiving upfront payments from their clients, as well as guarantees of compliance with contract terms.
Import and export businesses
Businesses operating in international trade request guarantee letters for various purposes. Customs officers require these guarantees for the temporary importation of goods, to suspend duties, or to secure payment of taxes and fees. The value of imported products determines the amount of these guarantees, which can range from a few thousand to hundreds of thousands of euros.
Additionally, many import companies participate in public tenders for the supply of products or services, where participation and performance guarantees are required. A company supplying medical equipment to the state or food to public organizations will need such guarantees.
Service provision companies
Cleaning, security, catering, and other service companies participating in public tenders require guarantee letters. When a cleaning company cleans public buildings for three years at an annual value of 150,000 euros, it must provide participation and performance guarantees of 7,500-15,000 euros.
IT and technology companies undertaking projects for the public sector, such as software development or system installation, also need guarantee letters. The special characteristic of these projects is that they often require warranty guarantees for several years after project delivery.
Companies supplying the public sector with all types of products/materials/consumables
Companies that supply the public sector with a wide range of products, such as pharmaceuticals, medical consumables, fuel, uniforms, clothing and footwear, office supplies, etc., typically require three types of guarantees for each public project: Participation, Performance/Good Faith, and Advance Payment guarantees.
Energy and environmental companies
Companies operating in the renewable energy sector obtain guarantees to secure installation and operation permits. A company installing a photovoltaic park or wind turbines submits guarantees to the Energy Regulatory Authority and environmental organizations.
Additionally, waste management and environmental services companies are required to provide guarantees to cover potential environmental damage and site restoration upon completion of their work.
Transportation and logistics companies
Transportation companies compete in tenders to transport public employees, students, or serve other state needs and must provide guarantee letters. Similarly, companies that deliver logistics services to large businesses or organizations must guarantee the value of the products they manage.
Tourism and event businesses
Tourism companies that participate in social tourism programs or organize events for public organizations obtain guarantee letters. Catering companies serving public events or providing food services to public institutions do the same.
The main options for obtaining guarantee letters
When a business needs guarantee letters, it chooses between two main options, each carrying significant operational and financial implications.
Bank guarantees with capital commitment
Banks require businesses to commit funds equal to the guarantee amount or to provide equivalent collateral, such as pledges or third-party guarantees. For example, if a business needs a 100,000-euro guarantee, it must "freeze" that amount in a bank account. The bank blocks the committed capital for the entire duration of the guarantee's validity, preventing the business from using it for other activities. The cost typically ranges from 0.5% to 2% annually, but businesses face a much higher real cost when accounting for the opportunity cost of not utilizing the locked capital.
Insurance guarantees without capital commitment
Insurance guarantees offer a modern and increasingly popular approach. This option does not require businesses to commit capital. Instead of tying up money, the insurance company assumes the risk after evaluating the business and the specific project.
Business will pay a reasonable premium based on the Guarantee Amount, the Type of Guarantee Letter, and the duration. Beyond paying the Premium, the Company is not burdened with anything else, nor is there any commitment of capital or assets.
This means that every Company can use the amounts that would have been tied up for purchasing materials, paying staff, investing in equipment, or participating in additional tenders.
Insurance companies offer greater flexibility in procedures and can issue guarantee letters very quickly.
SoEasy Insurance: The leader in Guarantee Insurance
At SoEasy Insurance, we make speed, ease, and simplicity the core of our philosophy. Since our founding, we have worked to make even the most difficult or demanding projects easy. We offer guarantee letters in the Cypriot market as a powerful weapon in the modern entrepreneur's arsenal.
At SoEasy Insurance, our partners guide you through every step and detail for the final issuance of a guarantee letter. Contact us to receive a quote!
