A bank guarantee is a financial promise made by a bank to cover a loss if a borrower fails to meet their contractual obligations. It acts as a safety net for the party receiving the guarantee, ensuring they will be compensated if the other party defaults on their agreement. This is commonly used in business transactions, such as construction projects or international trade. In essence, a bank guarantee enhances trust between parties by reducing the risk involved in a deal. It allows businesses to operate with confidence, knowing that they have financial backing from a reputable institution, which can facilitate smoother transactions and foster stronger relationships.