A request for a bank guarantee usually arrives in a heads of agreement or a contract that’s ready to sign, by which point the security clause is already drafted.

Behind the guarantee, most banks want a term deposit for the full amount or a mortgage over property, plus an establishment fee and an ongoing fee for as long as the guarantee stays open. A business with a short trading history can find approval harder to get, and when security is involved the bank can take a week or two to issue the guarantee, which can hold up a lease or a job that’s ready to start.

Other forms of security can take the place of a bank guarantee, and each asks for something different. Which of these you can use depends on what the landlord or client will accept.

Bank guarantees are secured with cash or property

A bank guarantee is your bank’s promise to pay the landlord or client if your business doesn’t meet its obligations. The landlord or client holds the guarantee and only claims on the bank if something goes wrong, so the money behind it stays with your bank.

Landlords and clients like that arrangement, and a bank guarantee is accepted almost everywhere, often as the default in leases and construction contracts. If your business has cash to spare, a cash-backed guarantee can also keep that money earning interest in a term deposit while it secures the lease.

For your business, the downside is that whatever backs the guarantee stays locked up while it’s active. On a shop leased at $60,000 a year, three months’ rent as security is $15,000 held in a term deposit for the life of the lease, with the bank’s fees charged on top each year.

Some banks accept property in place of cash, usually through a mortgage over your home or business premises. You keep your cash in the business, but if the landlord claims on the guarantee and you can’t repay the bank, the property is what the bank can turn to.

When the lease ends, your bank won’t release your security until the landlord returns the original guarantee or confirms in writing that it’s no longer needed. Your deposit or property stays tied up in the meantime, even after you’ve moved out.

Cash bonds are paid upfront to the landlord or client

There’s no application, credit assessment or ongoing fee with a cash bond, which makes it the simplest form of security to arrange.

Retail leases come with extra rules in some states. In NSW, for example, the landlord or agent has to lodge a retail lease bond with the government’s Retail Bond Scheme within 20 business days, where it’s held in trust. Check the rules in your state before you pay.

The trade-off is that you lose access to the money for the length of the lease. Getting it back can take time as well, because there’s no legislated timeframe for returning a commercial lease bond, so the lease terms and the landlord’s end-of-lease inspection decide when you recover the money.

Almost every landlord accepts cash, and a small bond is usually easy to set aside. On a larger lease, the money sitting with the landlord could otherwise go into stock, staff or the fit-out.

Lease bonds replace cash with a yearly fee

A commercial lease bond is an insurance-backed guarantee issued for a lease, in place of a bank guarantee or a cash bond. If you don’t meet your obligations, the landlord claims on the bond much as they would on a bank guarantee, and the insurer then recovers what it paid from your business.

You pay an annual fee for as long as the bond is in place, and you don’t put up cash or property. Before issuing one, the insurer assesses your business, looking at its financial position and how long it has been trading. Some providers also set a minimum bond amount.

Any landlord who has asked for a bank guarantee can turn down a lease bond, and some leases name a bank guarantee or cash and nothing else. When the landlord agrees, a lease bond makes the most difference on larger amounts, since it keeps the whole sum in your business where a cash bond or a cash-backed guarantee would lock it away. On the same $60,000 lease, that’s $15,000 you keep, with a yearly fee to pay in its place.

Surety bonds cover contracts and projects

Surety bonds work much like lease bonds, but for contracts and projects. You pay a premium in place of locking up cash, and the provider pays the client if they make a valid claim.

Clients on larger construction, facilities and maintenance contracts often want a performance bond before work starts, as security that you’ll finish the job and fix any defects. You can usually provide one with a bank guarantee or with a surety bond, which an insurer or a specialist surety provider issues in place of the bank.

Surety providers look closely before they issue a bond. Expect questions about your financial statements, the size and type of contracts you take on, and your record of completing them.

The tender or contract documents will list the forms of security the client accepts, so read them before you price the job.

Personal guarantees are backed by your own assets

Some landlords will accept a guarantee from you personally, as a director or owner, in place of a bank guarantee. Others want a personal guarantee as well as a bank guarantee or cash bond, often when the business is new or the tenant is a company with few assets of its own.

A personal guarantee needs no cash upfront and carries no fee. If the business closed with six months of the lease left, the landlord could pursue you personally for the unpaid rent and other costs under the lease, which can put your savings, property and credit history at risk.

Before you sign one, check:

  • which obligations it covers, from rent through to repairs and make-good costs
  • whether it’s capped at a set amount or a set period
  • what happens to it if you sell the business or assign the lease

A lawyer can review the wording before you commit, and you can read more about how personal guarantees work and how to manage the risk.

Retention is held back from each progress payment

On construction and trade jobs, security often comes out of your own invoices. Under a retention clause, the client holds back a percentage of each progress payment, releases part of it when the job is finished and keeps the rest until the defects period ends.

Because retention is built into the contract, there’s no fee and nothing to apply for, but you receive the last of the retention months after you’ve finished the work. On a long job with a 12-month defects period, cash held back from your first invoice can stay with the client for well over a year.

Some contracts let you replace cash retention with a bank guarantee or a bond, so you’re paid in full as you invoice. Raise it when you negotiate the contract. In some states, retention money on larger projects also has to be held in a trust account, which protects it if the builder gets into financial trouble.

Check what will be accepted before you choose

Whoever asked for the guarantee has one form of security in mind, and many will consider another if you raise it while the terms are still open. Once the lease or contract is signed, the security clause can only change if the other side agrees, so ask early which forms they accept and put your preferred option forward.

From the options on the table, compare how long each one holds your money or exposes your assets, and set what that cash could do in your business against the yearly cost of a fee or premium. Then decide how much personal risk you’re comfortable with, since a personal guarantee costs nothing until something goes wrong.

Security type Money or assets held Cost Usually accepted by
Bank guarantee A term deposit or property, held by the bank An establishment fee, plus an ongoing fee on the guarantee amount Most landlords and clients
Cash bond The full amount, for the full term No fees Almost every landlord
Lease bond No cash or property A yearly fee Landlords who agree to it
Surety bond No cash or property A premium Clients who list it in the tender or contract
Personal guarantee None, but your personal assets back it No fee Many landlords, often alongside other security
Retention Part of each progress payment No fee, but you wait longer to be paid in full Standard on construction contracts

Before you sign a lease or contract that asks for security






Funding can cover the security

A new lease usually comes with a fit-out, a move and opening stock, and a new contract can mean buying materials and paying wages weeks before the first payment comes in, all around the time the security falls due.

Funding can pay a cash bond or cover the costs around it, so the security doesn’t drain your working capital. Some business loans don’t require collateral, which helps if your property is already committed.