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Subject: Proposal to Utilize Surety Bond for [Advance Mobilisation/Material Procurement] Security
To:
[Corporate Name]
[Designation]
Dear [Sir/Madam/Name],
I hope this message finds you well.
We appreciate [Corporate Name]’s partnership with us for [Project/Supply Name]. To further streamline our collaboration, we propose adopting Surety Bonds as security for the [Advance/Material Payment] Guarantee under Contract No. [Insert].
To start with, Surety Bonds are Finance Ministry and IRDAI - approved instruments issued by renowned insurance companies, providing Bank Guarantee-like protection to you as a beneficiary. Just like the BGs, there are issued to you directly by the insurance company, favouring you, with guarantee wordings that are same as those of BGs.
Here are some key benefits of Surety Bonds:
- Par with Bank Guarantees: Surety Bonds offer similar security and risk mitigation as BGs, but with the added assurance of deep financial underwriting (of your partners like us) carried out by established insurance companies. This means [Corporate Name] is protected at the same level as with traditional guarantees.
- Support MSMEs and Financial Flexibility: Surety Bonds mitigate your risk against payment defaults while also benefiting customers like us, particularly MSMEs. Unlike traditional BGs, Surety Bonds do not block working capital, which allows businesses like ours to maintain liquidity and continue investing in growth.
- Enhanced Order Potential: By adopting Surety Bonds, [Corporate Name] can potentially secure more orders from customers due to the financial flexibility these bonds offer. With reduced financial constraints, your customers are likely to order more and your suppliers are in a stronger position to fulfill contracts, benefiting all parties involved.
- Growing Acceptance Among Leading Institutions: Since its inception in 2022, Surety Bonds have gained acceptance across several leading institutions, including IOCL, GAIL and L&T, among others. This growing list of adopters highlights the reliability and effectiveness of Surety Bonds as a financial guarantee tool. In fact, by conservative estimates, about Rs 4,500 Cr worth of surety bonds have been issued in India from end-2022
- Acceptance Across GeM Tenders: The Government e-Marketplace (GeM - that has done about 4 lac Cr of business as of Dec 2024) has also approved the use of Surety Bonds for all MSMEs participating in tenders. It also provides [Corporate Name] with an added assurance that many MSMEs (like us) transacting on GeM are well-backed, reducing the risk of non-performance.
An additional advantage for [Corporate Name] is that Surety Bonds can be beneficial both when [Corporate Name] is accepting guarantees and when providing guarantees to its customers as well, ensuring seamless financial operations.