Bank Instruments
These SBLC's are generated by "someone" blocking their funds on your behalf, so we speak of a "leased" SBLC. In other words, the SBLC is owned by the issuer and your business is the beneficiary.
A SBLC is a document issued by the bank guaranteeing payment on behalf of their client. The bank confirms the collateral is held within their clients account, the client buys and instrument and it is then freshly cut backed by providers capital or credit line.
The SBLC is generally issued for 1 year and 1 day. However, it can easily be extended up to 5 years.
Once issued, the SBLC is transferred to bank to bank via SWIFT protocol mode MT760 and it delivers via SWIFT or Euroclear Networks.
SBLC's being an operative instrument possesses 5 characteristics, i.e. assignable, viable, divisible, lienable and transferable.
For the issuing of SBLC or BG is subject to Uniform Rules for Demand Grantee (UDRG) of the International Chamber of Commerce (ICC publication #758), is readily accepted by almost all international banks.
Monetization
Monetization means to convert a bank instrument into legal tender or cash.
Business monetize instruments is to have the ability to use cash from the liquidated banking instruments i.e. Bank Guarantees (BG) and Standby Letter of Credit (SBLC) to buy goods and trade them with minimal risk.
Well connected businesses can enter the monetized amount in trade aka Private Placement Program to generate further funds, thus convert into non-recourse project funds that is not required to be paid back.
If you are looking to monetize and SBLC, you may want to find a monetize who can give you a decent LTV (loan to value) ratio. LTV's are assessed by the strength of the security of the instrument and the banks credit worthiness.
Monetizers prefer to monetize purchased SBLC's verified from top 25 banks.
Before SBLC / BG monetization is accepted by monetizes, they will often be checked for their legitimacy. The issuing bank can verify if it was issued by them.
How to monetize SBLC to obtain a non-recourse loan
Typically for top rated bank leased SBLC the price is between 10-12% inclusive of commissions. All-in-all the applicant needs to pay 10-12% of the face value of the instrument to the provider.
The instrument will be valid for 1 year 1 day. Then comes a monetize who takes over the SBLC and provides a non-recourse loan of around 60-75% (leased) LTV. Owned SBLC's can go as high as 85-90%.
The reason the monetizer pays such a high premium over the actual lease cost is because the monetizer can trigger his/her credit line using this SBLC and the profits that the monetizer makes over a period of 1 year is much more than what he pays to the applicant of the instrument.
To obtain a SBLC one needs to approach a financial facilitator who knows the SBLC provider. In normal cases the SBLC applicant needs adequate funds (around 10-12%) of the face value of the instrument in his account and thereafter raise a MT799 bank payment undertaking (BPU) in favor of the provider.
This is a conditional undertaking raised by the bank and the bank makes a formal promise to pay the lease/purchase cost + commissions on receipt of the SBLC (MT760). Thereafter, the provider's bank will respond with a, Ready, Willing, Able (RWA) MT799 stating that they are willing to send the MT760.
After this the applicant needs to get into a contract with a monetizer wherein the monetizer takes over the SBLC and pays the applicant a non-recourse loan.
For your information and benefit, we work alongside other financial institutions and have service providers who can facilitate in issuance of BG's / SBLC's, monetize and trade the monetized bank instruments.
All our service providers have a proven track record. Using bank instruments to fulfill your capital requirements can be a less complicated method to meet your capital needs.
This will save your business the time, effort and trouble of inconvenience to source for SBLC providers and monetizers.
Why we do that?
Because our clients told us they do not actually want bank instruments. They want business funding solutions, only that these funding solutions are structured within the bank instrument monetization sphere.
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