The fund based guarantee
A fund based guarantee involves credit offered by banks in the form of loans, overdrafts and other cash transactions. In a non-fund based financial service the bank does not deal with funds or cash transactions. Some examples of this type of service are bonds, letters of guarantee and letters of credit.21-Oct-2017
The non-fund based guarantee
The non-fund based guarantee are the letter of guarantee or letter of credit by the banks wherein banks get fee income and Since there is no immediate outflow of funds from the banks they are also known as the non-fund based facility.
Under a performance guarantee, compensation of money will be made by the bank when there is any delay in delivering the performance or operation. Payment will have to be made even if the service is delivered inadequately.