Cash or Collateral backed Bank Guarantees received via SWIFT may be used by the Beneficiaries to secure credit lines. Typically, a banker will have no objection to offering credit against Bank Guarantees assuming that the guarantee is worded properly and is from an acceptable institution.
Despite what others may tell you , normally lenders will not give you 100% of the BG face value. The loan to value or LTV, could be anywhere from 40-85% of the face value. How much the investor will monetize will depend on your project or transaction, where the BG is from, and how much it is for.
The total Line of Credit term can be for the duration of the Bank Guarantee. Terms are usually for 1 year with extensions available. It should go without saying that the Line of Credit term will not exceed the expiration of the Bank Guarantee.
The Bank Guarantees that are issued under these types of facilities are worded specifically for monetization, i.e. to secure credit lines.
Not all guarantees are intended for monetization so it is important to understand what you paying for and what you are getting to ensure that it will work for your intended purpose.
This is why we suggest clients source their monetization first and purchase their BG or SBLC from Windsor Funds. Let us take care of both sides so that you know prior to paying for your BG that the monetization is accepted and in place.
It is important to note that although the Bank Guarantee obtained is leased it does not hinder the quality of the Guarantee and it can still be used as collateral for credit lines and loans. The Guarantee is still valid for the same amount of money for the same period, only beneficiary has been amended.
Also realise that text or language of the Bank Guarantee or Standby Letter of Credit will not say ‘leased’. The reason for that is because “leased” is an industry term but not a technical or banking term. The term ‘leased” describes the process well but the language of a inter-bank communication will not use vernacular terminology. The proper term is actually ‘Collateral Transfer”.
Costs for Bank Guarantee will vary but clients should know that they are not cheap. Where you want the BG from will be a major determining the factor in the cost. AAA rate banks cost more than B rated institutions, for example. Another determining factor in cost will be the amount, time frame and intended purpose. Generally you can expect to pay anywhere from 3-16% of the BG face value. The interest rate you receive on the Line of Credit will vary depending on your company, trade, location and project. Additional fees may apply.
Windsor Funds assists our clients in raising and securing credit against Bank Guarantees. It is easier to monetize a BG we have produced because we have relationships and use legal language and text that can be we already know can be approved. We hold strong relationships with banks and private equity groups with a desire to expand lending opportunities in the trade industry.
Clients first need to be approved for receiving the Bank Guarantee prior to applying for credit against it.