Glossary
Guarantee & Surety Bond Glossary
This glossary defines the key terms of contract guarantees and the letter of guarantee (carta fiança) — from the parties to a guarantee (principal, beneficiary, guarantor) to the instruments (performance bond, bank guarantee, SBLC). Accurate, senior-level definitions you can look up fast and cite with confidence.
A
- Advance payment bond
- A bond that protects an advance paid by the beneficiary to the principal at the start of a contract. The guaranteed amount usually amortises as the advance is recouped against progress payments.
- Appeal deposit (depósito recursal)
- A deposit required to admit an appeal in labour courts. A judicial guarantee can be offered in its place, under the rules of the proceeding and subject to the judge's acceptance, avoiding capital being locked up.
B
- Bid bond
- A bond guaranteeing that a bidder will honour its bid and sign the contract if awarded. It covers the beneficiary's loss if the winning bidder refuses the award.
- Beneficiary (obligee)
- The party protected by the guarantee and creditor of the obligation — the public authority, court, customs, landlord, or private client. It is who calls the guarantee if the principal defaults.
- Bank guarantee
- A two-party instrument issued by a bank that pays the beneficiary on demand. It uses the principal's credit line, unlike a letter of guarantee issued by a guarantor, which keeps credit lines free.
C
- Customs bond
- A bond guaranteeing payment of duties and compliance with obligations owed to the customs authority in import and export operations, replacing cash deposits.
- Cash security / deposit (caução)
- A deposit of cash, securities, or property pledged as security for an obligation. It ties up the provider's capital; the letter of guarantee and the bank guarantee are the alternatives that free that cash.
- Conditional bond
- A guarantee whose payment depends on proof of default and, often, of loss. The guarantor reviews the call before paying, protecting the principal against an abusive call.
- Call on the guarantee
- The beneficiary's demand for payment after the principal defaults on the obligation. The guarantor reviews the demand under the wording of the guarantee and pays up to the guaranteed amount.
G
- Guarantor (fiador)
- A person or company that, under a guaranty contract, assumes responsibility for meeting the obligation if the primary debtor fails. It is a personal guarantor, distinct from a guarantee company.
- Guarantor (garantidora)
- The company that issues the guarantee and stands behind the principal to the beneficiary. It analyses the risk, sets the fee, and pays valid calls up to the guaranteed amount. ERGO is a guarantor: it issues letters of guarantee and contract guarantees, and is not a bank.
- Guarantee fee
- The amount the principal pays the guarantor for issuing the guarantee. It is set by quote after the risk analysis, according to the guaranteed amount, the term, the type of guarantee and the company’s profile. Get your quote online through the app or on WhatsApp +55 11 93444-0099.
I
- Indemnity (contragarantia)
- The principal's undertaking (and sometimes its owners') to reimburse the guarantor for anything it pays on a call. It is what makes a letter of guarantee cheaper than tying up cash.
J
- Judicial (court) guarantee
- A guarantee offered in place of the cash deposit required in litigation — tax, civil, or labour — letting the principal keep the capital in hand. Acceptance depends on a request in the case and on the judge's decision.
L
- Letter of guarantee (carta fiança)
- A personal guarantee under which the guarantor undertakes to pay the beneficiary if the guaranteed party defaults. When issued by a bank it is a bank guarantee (fiança bancária) and consumes the credit line; when issued by a guarantor such as ERGO, it does not consume a bank credit line.
O
- On-demand bond
- A guarantee that obliges the guarantor to pay on the beneficiary's simple demand, without prior proof of default. It shifts the risk of an unfair call onto the principal.
P
- Performance bond
- A bond guaranteeing that the principal completes the contract on its terms. If the principal fails to perform, the guarantor pays the cost of completion or pays the beneficiary, up to the guaranteed amount.
- Payment bond
- A bond guaranteeing payment of subcontractors, suppliers, and labour on a project. It protects those who furnished goods or services against the principal's non-payment.
- Principal (tomador)
- The party whose obligation is guaranteed — the contractor, supplier, or company. It requests the guarantee, pays the fee, and signs the indemnity, agreeing to reimburse the guarantor for any amount paid on a call.
R
- Retention bond
- A bond that replaces the cash retention (typically 3–5%) held in construction to cover defects. The principal is paid in full while the guarantor guarantees the amount that would have been withheld.
- Risk analysis (subscrição)
- The process by which the guarantor evaluates the principal's financial health, track record, and obligation before issuing the guarantee and setting the fee and the amount it can guarantee.
S
- Seguro garantia (Brazil)
- In Brazil, a product issued by insurance companies in which the insurer guarantees to the creditor that the principal will meet an obligation. It is not the same as the letter of guarantee (carta fiança) issued by a guarantor — the instrument ERGO issues.
- SBLC (Standby Letter of Credit)
- An irrevocable bank guarantee that pays the beneficiary on presentation of documents evidencing default. It is widely used in international trade.
- SKR (Safe Keeping Receipt)
- A custody receipt issued by a regulated custodian attesting that it holds an asset. It is not a bank guarantee, an SBLC, or a "monetizable" instrument — only proof of custody.
- Subrogation (sub-rogação)
- The guarantor's right, after paying a call, to step into the beneficiary's position and recover the amounts paid from the principal and the indemnitors.
- Step-in clause (cláusula de retomada)
- A clause that lets the guarantor take over performance of the defaulted contract — directly or through a third party — instead of merely paying the guaranteed amount, completing the guaranteed work or service.
T
- Tax enforcement (execução fiscal)
- An action in which the tax authority collects a registered tax debt. A judicial guarantee can be offered in place of a cash attachment, if the judge accepts it, freeing the debtor's capital while it disputes the debt.
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