Bank Letter of Guarantee vs Surety Bond
Understand the difference between a bank letter of guarantee (carta fiança) and a surety bond — who issues it, how much it costs, what it ties up in your bank credit line, and what courts and public tenders actually accept.
A bank letter of guarantee is issued by a bank and usually ties up the company's credit line, with a typical cost of 2% to 5% per year. A surety bond is issued by an insurer, does not consume the bank credit line, costs around 1% to 4% per year, and is widely accepted in court (Brazilian Civil Procedure Code, art. 835, §2) and in public tenders (Law 14.133/2021).
Key facts
- Issuer: Bank letter of guarantee: a bank. Surety bond: an insurer authorized by Susep.
- Impact on bank credit line: The bank letter of guarantee usually ties up the bank credit line; the surety bond does not.
- Typical cost: Bank letter of guarantee ~2% to 5% p.a.; surety bond ~1% to 4% p.a.
- Judicial acceptance: The surety bond is accepted to replace a cash deposit (Civil Procedure Code, art. 835, §2).
- Collateral required: The bank letter of guarantee typically requires counter-guarantees and banking reciprocity; the surety bond relies on risk analysis and a policy.
Side-by-side comparison
| Criterion | Bank Letter of Guarantee | Surety Bond |
|---|---|---|
| Issuer | Bank | Insurer (Susep) |
| Typical cost | ~2% to 5% per year | ~1% to 4% per year |
| Consumes bank credit line? | Yes, usually ties up the line | No |
| Collateral required | Counter-guarantees and banking reciprocity | Risk analysis + policy |
| Judicial acceptance | Accepted | Accepted (CPC, art. 835, §2) |
| Issuance time | Days to weeks | Usually 24 to 72 hours |
| Best for | Companies with spare bank credit line | Preserving cash and the credit line |
What is a bank letter of guarantee
A bank letter of guarantee (carta fiança) is a guarantee issued by a bank in favor of a beneficiary (a public body, a private contractor, or a court). The bank commits to paying a defined amount if the contracted company fails to perform the secured obligation.
Because it is a banking product, the bank letter of guarantee normally consumes the company's credit line at the bank — the guaranteed amount is reserved and is no longer available for other operations such as working capital, financing, or foreign exchange. Beyond the fee, banks usually require counter-guarantees and reciprocity (deposits, average balances, other products).
This makes the bank letter of guarantee more expensive in total cost and less flexible for companies that need to preserve their credit line for day-to-day operations.
What is a surety bond
A surety bond (seguro garantia) is a policy issued by an insurer authorized by Susep, under which the insurer guarantees the beneficiary that the principal (the contracted company) will meet its obligation. Functionally, it covers the same risk as a bank letter of guarantee.
The essential difference: because it is insurance rather than bank credit, the surety bond does not consume the company's bank credit line. The company keeps its line free to finance its operations, while the contractual guarantee is carried by the insurer.
The surety bond is regulated, widely accepted in public tenders (Law 14.133/2021), and recognized by the Civil Procedure Code as a way to replace a cash deposit in judicial enforcement (art. 835, §2). ERGO specializes in surety bonds.
Which one to choose
A bank letter of guarantee can make sense when the company already has a spare credit line and a banking relationship that will not be harmed by tying up that credit. Even so, the total cost tends to be higher because of the required counter-guarantees and reciprocity.
The surety bond is usually the more efficient choice for most companies: it preserves the credit line, generally costs less, is issued faster, and carries the same weight in tenders and before the courts. For those who need to keep cash and credit free to grow, it is the natural option.
Why the surety bond usually wins
It does not consume the bank credit line: the company's credit stays free for working capital, financing, and other operations — whereas the bank letter of guarantee ties up that line.
Generally lower cost: surety bond rates (~1% to 4% p.a.) tend to be lower than the total cost of a bank letter of guarantee (~2% to 5% p.a. plus counter-guarantees and reciprocity).
Accepted judicially and in tenders: the surety bond replaces a cash deposit in enforcement (CPC, art. 835, §2) and is accepted in public tenders under Law 14.133/2021, usually issued within 24 to 72 hours.
Frequently asked questions
Is a bank letter of guarantee the same as a surety bond?
No. Both guarantee the performance of an obligation, but the bank letter of guarantee is issued by a bank (and usually consumes the company's credit line), while the surety bond is a policy issued by an insurer and does not consume the bank credit line.
Which is cheaper, a bank letter of guarantee or a surety bond?
The surety bond is generally cheaper. Surety bond rates are around 1% to 4% per year, versus 2% to 5% per year for a bank letter of guarantee — and the letter of guarantee also usually requires counter-guarantees and banking reciprocity, raising the total cost.
Does a surety bond consume my bank credit line?
No. Because it is insurance issued by an insurer rather than bank credit, the surety bond does not tie up the company's bank credit line. The bank letter of guarantee, in turn, usually does.
Does a court accept a surety bond instead of a cash deposit?
Yes. The Brazilian Civil Procedure Code (art. 835, §2) treats the surety bond as equivalent to a cash deposit for securing enforcement, allowing an attachment or judicial deposit to be replaced by a policy.
Is a surety bond valid for public tenders?
Yes. Law 14.133/2021 (the new Brazilian Public Procurement Law) provides for the surety bond as both a bid guarantee and a contractual (performance) guarantee.
How long does it take to issue a surety bond?
After risk analysis and documentation, a surety bond is usually issued within 24 to 72 hours — generally faster than formalizing a bank letter of guarantee.
Need a guarantee without tying up your bank credit line?
ERGO issues surety bonds for public tenders, contracts, and judicial proceedings — preserving your credit line.