- Import Collateral You Don’t Have
- Secure Credit Lines & Loans
- Leverage Investments to 900% +
- Refinance or Debt Restructure
It is technically not possible to lease a bank guarantee (BG) or standby letter of credit (SBLC). If a request was made to a banker to lease a demand guarantee, the response would be that of confusion. The correct term to use is ‘Collateral Transfer’. This is a private agreement between a funder (Provider) and a borrower (Recipient or Beneficiary) whereby the Provider agrees to pledge assets with his bank and to make an ‘investment’ to the Recipient.
The investment is made by the Provider lodging funds with his bank but instead of remitting them as a cash injection, they are remitted as a Bank Guarantee (demand guarantee see URDG ICC 758 or in some cases dependent on jurisdiction, a Standby letter of credit (SBLC).
In return, the Recipient will agree to pay to the Provider a return known as the ‘leasing Fee’. This is normally a fixed fee set annually and paid in advance when the Guarantee is advised to the Recipient Bank in the correct protocol and agreed as received. Sometime, Providers may also take an equity stake.
During the life of the Guarantee and whilst it is in the account (in possession of) the Recipient, the Recipient may use the Guarantee as security for loans and credit, or indeed secure other forms of debt against it.
Irrespective, at the end of the term, i.e. at expiry of the Guarantee or SBLC, the Recipient will pre-agree with the Provider to remove any encumbrances or loans or credit secured against the Guarantee. In this respect, effectively agreeing to return the Guarantee to the Provider, although it will simply expire and no physical return is required.
As there is an agreement to “provide” and the same agreement calls for its effective “return”, the process is remarkably similar to normal leasing agreements. Hence, these facilities have picked up the phrase ‘Leasing Bank Guarantees’
It should not be confused with the ‘sale’ or ‘purchase’ of Bank Guarantees as it is not possible to buy or sell Bank Guarantees or Letters of Credit of any form. If you are offered a Bank Guarantee or SBLC for sale, we would advise that you act with extreme caution
Project Finance