A bid bond at tender, a mobilisation BG on award, a performance BG through execution, a retention BG at handover — plus letters of credit for procurement. Each one eats your non-fund-based limit. We map the whole stack across PSU and private banks, structure the limit it draws on, and tell you honestly when an insurance surety bond would free that capacity so you can bid the next job. It’s the contractor’s extension of our corporate finance & debt syndication practice. Part of Finnova’s ₹4,250 Cr+ mobilised across 100+ corporate-finance mandates since 2011.
For an EPC, infrastructure or tender contractor, the binding constraint is rarely the loan — it’s the non-fund-based (NFB) limit that backs your guarantees and letters of credit. A bank guarantee (BG) pays the employer on default; a letter of credit (LC) pays a supplier on compliant documents under UCP 600 — never equate the two. Both are non-fund instruments: they advance no cash, but each live one consumes your limit and locks margin until cancelled. Stack enough of them across projects and you simply run out of headroom to bid. See the full corporate finance & debt syndication practice, the bank guarantee and letter of credit pages.
Finnova Advisory is an advisory firm — we structure the file, the limit and the terms; the bank issues and the insurer underwrites. Margin, commission and acceptance are set by the issuing bank, insurer and beneficiary, case by case. Rate and margin figures here are indicative, dated June 2026, and never a promise.
From the tender desk to the defects-liability sign-off, a different instrument carries the risk at each stage. Here is the map an EPC contractor actually works to.
| Project stage | Instrument | Class | What it secures | Typical tenor |
|---|---|---|---|---|
| StageTender / bidding | InstrumentBid-bond / EMD guarantee | ClassFinancial | SecuresBid security in place of cash earnest money — forfeited if you win and then refuse to sign or furnish the PBG. | TenorBid validity + a short claim window |
| StageAward / kick-off | InstrumentAdvance-payment / mobilisation BG (ABG/APG) | ClassFinancial | SecuresRecovery of the mobilisation advance the employer releases to you; reduces as running bills adjust the advance. | TenorUntil the advance is fully recovered |
| StageExecution | InstrumentPerformance guarantee (PBG) | ClassPerformance | SecuresCompletion, quality and timelines of the works — typically 5–10% of contract value, the core EPC guarantee. | TenorContract period + defects-liability window |
| StageProcurement (parallel) | InstrumentLetter of credit (sight / usance) | ClassPayment | SecuresPays suppliers for materials, plant and imported equipment against compliant documents under UCP 600. | TenorPer purchase order / shipment terms |
| StageHandover / closeout | InstrumentRetention-money BG | ClassFinancial | SecuresEarly release of retention money the employer would otherwise hold through the defects-liability period. | TenorThrough the defects-liability period |
Read across the row, not down the column: on a live EPC project several of these run at the same time — a performance BG holding execution while a retention BG sits against handover and an LC funds the next material shipment. RBI directs banks to focus on financial guarantees and to be cautious with performance guarantees, issuing a PBG only where you have the experience and capacity to deliver. There are no open-ended BGs — every guarantee carries a definite amount and validity. Margin is bank-policy and case-specific — there is no universal figure.
They look similar on a sanction letter, but they fire on opposite triggers — and confusing them in a tender clause is how a guarantee gets rejected.
A BG is the employer’s security against you. The bank pays the beneficiary on a valid invocation if you fail to perform or repay an advance. It is governed by the RBI Master Circular on Guarantees and Co-acceptances, and you sign a counter-indemnity to the bank. This is the instrument for bid, advance, performance and retention security.
An LC is a payment instrument for your suppliers. The bank pays the seller on presentation of compliant documents — governed by UCP 600 (39 articles; up to 5 banking days to examine documents), in sight or usance form. In India, RBI/FEMA override UCP 600 on any conflict. This is how you procure materials, plant and imports without parting with cash up front.
In one line: a BG pays on default; an LC pays on a compliant presentation. A standby LC (SBLC) blurs the line — it functions like a guarantee but is issued under UCP 600 or ISP98 — and we’ll tell you when an SBLC is the cleaner route for a foreign beneficiary. Full detail on the bank guarantee and letter of credit pages.
Follow one growing EPC firm through a year of tenders and the problem reveals itself — every win consumes more of the same finite limit.
Four bid-bond/EMD guarantees go out against four tenders. Each is a live non-fund liability against your NFB limit — the moment they are issued, that headroom is committed, even though nothing has been built.
On the two awards you furnish a performance BG (5–10% of contract value) and an advance-payment BG for the mobilisation funds. Those are larger and longer-dated than the bid bonds — your limit is now meaningfully drawn.
You open sight/usance LCs to procure steel, cement and imported plant. Same limit, more drawn. The retention BGs from earlier completed jobs may still be live through their defects-liability period, holding capacity you can’t see.
A good fifth tender appears and there is no NFB limit left to issue the bid bond. You sit it out — not because the credit case is weak, but because the limit is full. This is the ceiling we move with surety or a structured limit enhancement.
Since the IRDAI (Surety Insurance Contracts) Guidelines, 2022 (effective 1 April 2022), an insurer can issue bid, performance, advance and retention security — and under GFR 2022 it’s accepted at par with a bank guarantee in government procurement. The difference for a contractor is one thing: it does not touch your bank non-fund limit.
We are insurer- and lender-agnostic — the call is driven by your limits, the beneficiary and the tenor, never by what we’re selling. The beneficiary must accept the surety route; we confirm that before you commit.
Explore the full insurance & surety bond practice, or read surety bonds vs bank guarantees.
A bank sells you one instrument; we sit on your side of the table — mapping the whole lifecycle, fixing the wording and the limit, and switching rails to surety when it serves you better.
Bid, mobilisation, performance, retention and procurement LCs planned together against one limit — not arranged one panicked deadline at a time.
We pre-clear each beneficiary’s format — including e-BG over SFMS — so the guarantee isn’t bounced at submission, the most avoidable delay in tendering.
We structure and enhance the NFB limit, push the cash margin down where the credit case supports it, and free headroom with surety where it fits.
We track validity and claim periods and get guarantees returned and cancelled at contract end — releasing the limit and margin you’re still paying for.
Tell us the tender or project stage and we’ll tell you the right instrument (BG, LC or surety), the likely margin, and whether a surety bond would free the capacity a stacked BG ties up. No bank pitch — a straight read from people who run these for contractors every week.
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