Can You Monetize a Bank Instrument such as SBLC or BG? (Part 2)
Firstly, we need to understand how SBLC and/or BG works.
I won’t be giving too much explanation in this article as I have already given in-depth information with regards to SBLC and BG in previous articles. For the benefit of this article though I will give a basic and guided explanation.
Standby Letter Of Credit (SBLC) is used as Payment Guarantee.
e.g. A Buyer in the USA secured a contract for the supply of fuel with a Seller from Germany (Cross Country). Assuming the contract runs for (one) year, and the relationship between both parties has been secured, to provide a guarantee to the Seller, the Buyer then goes ahead and opens/issues an SBLC to Seller ( we can refer to this as a Stand-By).
Upon receiving the SBLC, the Seller now has the option to request to have the SBLC serve as a collateral in the Seller’s Bank toward securing a Bank Loan Facility.
These days it can be quite difficult for banks to provide such loan credit facility based on an SBLC but it often happens. Individual Banks have their ways of deciding. When and If the Bank does approve, the Seller goes ahead and signs an agreement with the Bank. The Seller can then go ahead and drawdown from its loan credit facility to facilitate all processes leading to the fulfilment of his/her contract with the Buyer.
Bank Guarantee (BG) isn’t used for Payment Guarantee, It is for a Performance Guarantee.
e.g. The Contract above, based on the SBLC received, requires the Seller to open a Performance Bond, usually only a maximum of 10% from the Payment Guarantee value above. This Performance Bond is claimable when the Seller has made a “default”. If not, then it is returned by Buyer to Seller, upon the agreed condition(s). The Performance Bond instrument is BG.
Now, let’s define and make a clarification with regards to the term
Monetization refers to the process of making money out of the Bank Instrument (SBLC/BG) after a process of heavy and long reviews/analysis/scoring by the Bank. It can be quite a long process and discouraging that is why you might require the expertise of a Financial Expert such as the professions at Eugene M. Edwards Financial Consultancy. The only way to monetize the SBLC by going through this process, no other way, so talking to an expert, and one with years experience is paramount.
Now, back to the question “Can, You Monetize a Bank Instrument such as SBLC or BG?”.
Standby Letter Of Credit (SBLC): Yes, we can monetize SBLC. But it is a very discrete process. Only a well-represented client, with experts such as those from Eugene M. Edwards, can receive loan credit facility based on SBLC as collateral.
Banks would rather deal with clients that have been introduced by seasoned financial consultants whom they have dealt with for years when it comes to Monetization of an SBLC.
Bank Guarantee (BG): No. It is not a Payment Guarantee. It is a Performance Guarantee and only claimable based on default(s) agreed. If none, then the BG can not be claimed.
If you are seriously considering obtaining an SBLC, BG and looking to further monetize then please get in contact with Eugene M. Edwards and start your process the smart way.
Dr Eugene M. Edwards