Leasing ‘Bank Gurantees’
The explanation below pertains to the practice commonly referred to as “leasing” Bank Guarantees. However, it’s important to note that the technically accurate term for this process is Collateral Transfer.
Financial experts posit that the term “leased” might have been borrowed from Commercial “Leasing” Contracts, given the similarities between a “Leased” Bank Guarantee contract and a Commercial “Leasing” Contract.
While the term “Leased” Bank Guarantee may not be found in official financial references, it has become ingrained in financial discourse over the years.
What is a ‘Leased’ Bank Guarantee? A “Leased” Bank Guarantee is exclusively used for securing loans and lines of credit. Demand Guarantees (or Bank Guarantees) and Bankers Letters of Guarantee are the only types of guarantees suitable for this purpose. The Demand Guarantee follows a specific format governed by ICC Uniform Rules for Demand Guarantees (URDG) and is payable on first demand.
Banks readily accept Demand Guarantees as collateral for loans or credit lines in the context of “Leased” Bank Guarantees, provided the issuing bank is of sufficient standing. Zurich, Switzerland, is home to the market leader in facilitating access to loans and credit lines through “Leased” Bank Guarantees.
How does a company obtain a ‘Leased’ Bank Guarantee? To secure credit facilities, a company must enter into a Collateral Transfer Agreement with a Bank Guarantee Provider. Recognized as Sovereign Wealth Funds, Hedge Funds, Private Equity Funds, or larger Family Offices, these providers are found in various regions globally.
Upon signing the Collateral Transfer Agreement, the company becomes the beneficiary. Bank Guarantees are typically “leased” for one year, and a Collateral Transfer Fee is paid to the Bank Guarantee Provider. Ownership reverts to the provider at the agreement’s expiration.
Monetizing a ‘Leased’ Bank Guarantee: The Bank Guarantee Provider instructs their bank to transmit the Demand Bank Guarantee to the beneficiary’s bank via Swift. With the Guarantee in their account, the beneficiary can apply for a loan or credit line, often termed as Credit Guarantee Facilities. The Demand Bank Guarantee serves as collateral for a Loan Against the Bank Guarantee.
It’s crucial for companies facing consistent credit refusals to consider reaching out toRedeure Recognized as market leaders in collateral finance, Redeure has been providing access to credit facilities for over a decade through their Collateral Transfer Facility, which utilizes “Leased” Bank Guarantees. Interested parties can get in touch by filling out the online enquiry form.