Difference Between Collateral Transfer and Collateralized Bank Loan
When a bank extends a loan based on the provision of security or collateral, it is termed a Collateral bank loan. Such loans fall into two distinct categories: private/personal loans and corporate loans, each representing markedly different forms of collateral financing.
Collateral bank loans, facilitated through Collateral Transfer, involve the borrower possessing the security or collateral. Collateral Transfer typically entails “leasing” a bank instrument, commonly a Demand Bank Guarantee, to secure collateral financing.
Explanation of Collateral Transfer: Collateral Transfer, a longstanding practice for obtaining loans and credit lines, is often referred to as Credit Guarantee Facilities. This process enables a company to “lease” a Demand Bank Guarantee from another company, designated as the Bank Guarantee Provider or SBLC Provider. The recipient is known as the beneficiary. A contractual agreement, the Collateral Transfer Agreement, is signed between the provider and beneficiary. The beneficiary pays a Collateral Transfer Fee for the lease, usually lasting one year, with the instrument returned upon expiration. Following the agreement, the provider instructs their bank to transfer the Bank Guarantee to the beneficiary’s bank. This collateral ownership allows the beneficiary to approach their bank for financing.
Collateral Loans: Collateral loans, granted by banks against security, come in two forms: personal loans for private clients and corporate loans, often in the form of a line of credit. Private client loans commonly involve collateral such as homes, cars, or other assets. Corporate loans, frequently structured as lines of credit, often use goods receivable, floating and fixed assets, and company shares as collateral. Directors may be required to provide personal guarantees as additional collateral.
Overview: In both instances, the bank provides financing against collateral. The distinction lies in the nature of Collateral bank loans, which specifically involve loans against security or collateral, while Collateral Transfer serves as the mechanism allowing banks to lend against collateral.
For businesses facing challenges in accessing credit due to insufficient collateral, Redeure stands out as recognized experts in Collateral Transfer. With over a decade of experience, they have been instrumental in helping companies secure loans and credit lines, especially amid the challenges posed by the pandemic. To explore how Redeure can facilitate funding for your business, complete an enquiry form today.