The lease and purchase of bank/financial instruments in form of Standby Letter of Credit popularly known as SBLC and Bank Guarantee popularly known as BG from us is achieved through what is referred to as “Transfer of collateral” or “Collateral transfer”.
The mechanism is activated when a client approach us as the provider to issue a BG or SBLC in return for a return/contract fee.
Both parties agree to enter into a contract that governs the issuance of the guarantee as guided by International Standard Practices of the industry and the ICC. Such contractual agreement is referred to as a Deed of agreement (DOA) or a Collateral Transfer Agreement (CTA).The term “leasing a Bank Guarantee or Standby Letter of Credit” is loosely used for such transactions but it is logically impossible to physically hand out a Bank Guarantee or Standby Letter of Credit, and, rather it should be clearly represented in a form of securities/bank instrument collateral lending. This is why there is never a reference to the word “lease” in a Bank Guarantee (BG) or Standby Letter of credit (SBLC) verbiage. This single fact helps the beneficiary of such lease to....
The Standby Letter of Credit and Bank Guarantee is provided by our bank (as the provider) to the beneficiary’s account/bank and it is transmitted interbank only through SWIFT (MT760). During the lifespan of the instrument, the beneficiary may utilize it for the two main and popular purpose of credit enhancement (raise loan, enhance credit line) or as a payment guarantee (Trade positions of a buy and sell contract for good and/or services to be rendered). At the end of the tenure of the agreement that guided the issuance, the beneficiary is expected to return the bank guarantee to our issuing bank without encumbrances or liens and the beneficiary also has the obligation to indemnify us against any loss incurred against such instrument. In addition, the beneficiary also has the option of extending the contract because our collateral transfer agreement or Deed of agreement always comes with an option of rolls and extension of up to 5 years and in some cases 10 years depending on how strong the beneficiary is placed and our due diligence.
Our Bank Guarantee and Standby Letter of Credit is issued from AAA rated banks only and it is widely accepted in all banks in the world with some exception that we may not be willing to send out a SWIFT to some banks/financial institutions based on our previous experience and relationship with such bank/institutions. There is always an option for the applicant/beneficiary to submit their verbiage for review depending on the approval of our bank otherwise, our bank’s standard verbiage will be used in SWIFT transmission of such bank instrument which will be made available in the contract which is usually in the ICC758 (UPC 600) format which is widely accepted for activation of credit line. Our contract fee is charged at a rate of 5% to 8% and there are variables that determines this which all falls on our due diligence on the beneficiary/receiver and obviously, the contract size also has an effect on the pricing.
Also called an advance payment bond. A contract under which the issuer undertakes to be responsible for the fulfillment of a contractual obligation owed by one person to another if the first person defaults. The issuer's obligation may be primary (as in an on-demand obligation or indemnity) or secondary (as in a guarantee). An advance payment guarantee or bond is typically used to underpin or guarantee the performance of a commercial contract, such as a contract for the sale of goods (where the buyer is the beneficiary) or a construction contract (where the employer is the beneficiary). For example, a buyer or employer may make down or advance payments to a seller or contractor to provide it with funds to purchase necessary materials or machinery or otherwise prepare itself to perform the contract. The buyer or employer will wish to ensure that if the seller or contractor fails (perhaps because of insolvency) to deliver the goods or perform the services in accordance with the contract then, at the very least, it can recover the payments made to the seller or contractor. The buyer or employer will, therefore, require the seller or contractor to provide an advance payment guarantee or bond for these payments. The guarantee or bond will provide that if the seller or contractor fails to meet its contractual obligations, the issuer will refund the advance payments made by the buyer or employer.
Two of the most commonly used terms in import/export trade finance are Proof of Funds and Proof of Product, otherwise known as POF and POP. In order to engage either as a buyer or seller of commodity goods both POF and POP is required respectively. Our clients can leverage their money by borrowing funds from our asset holder’s cash assets. This is called a Lease POF. From these cash assets they can have a bank comfort letter, readiness letter (RWA letter), pre advice SWIFT MT799, block the account with a SWIFT MT760, or even issue a bank instrument such as a standby letter of credit, bank guarantee, or other documentary letter of credit by SWIFT MT760 to their beneficiary bank.
A comfort letter is a document of assurance issued by a parent company or an accounting firm to reassure a subsidiary company of its willingness to provide financial support. It is an affirmation letter, not a confirmation letter, that offers backups where a customer requires a loan or a company needs financial help. The federal government may also issue a comfort letter to a borrower or supplier of a public entity to reaffirm support when obligations are not met on time.
Proof of funds is a bank statement or a document that demonstrates that a company or a person has the money to finalize the transaction. The purpose of the document is to ensure that the financial ability that is required for the transaction is legitimate and procurable. The document is mostly used for funding those projects that require a huge amount of money for investing, often for real estate transactions.
There is a possibility that proof of funds is used by certain people that might carry out financial scams. This makes it necessary to present with a proof of funds for investigating the other party thoroughly and performing diligence checks.
Ready willing and able (RWA) is a document that a bank or a financial institution issues on the clients’ behalf. The document showcases the capability and intent (both financially and legally) for entering into the financial transactions. The RWA’s are also referred to as the bank comfort letters.