Construction Funding via Collateral Transfer
At Redeure we facilitate funding for various construction projects globally, covering expenses like material purchase, equipment acquisition, land procurement, and general construction costs. Our proficient finance team provides immediate working capital for new projects, subject to passing our due diligence process, whether they involve commercial, residential, infrastructure, or leisure developments.
Traditionally, companies secure project funding through bank loans, private equity (PE), venture capital (VC), or sovereign wealth funds. However, due to stricter bank criteria, businesses are exploring alternative funding options. For those with robust business plans, our Collateral Transfer facility offers a valuable solution. This financial mechanism utilizes Bank Guarantees as collateral, enabling companies to obtain loans and credit lines from both traditional banks and non-traditional lenders. Construction firms interested in leveraging the Collateral Transfer Facility need to present a viable business plan with a well-defined exit strategy.
Collateral Transfer: Collateral Transfer involves one company (the Provider) lending or leasing a Demand Bank Guarantee to another company (the Beneficiary) for typically one year. In return, the Beneficiary pays the Provider a Collateral Transfer Fee. Although commonly referred to as a Leased Bank Guarantee, this term, while technically inaccurate, has become a widely accepted way of describing Collateral Transfer.
A Demand Bank Guarantee, if appropriately drafted, can be converted into cash by using it as security for loans and credit lines, often termed credit guarantee facilities. Governed by ICC Uniform Rules for Demand Guarantees (URDG) 758, a Demand Bank Guarantee is payable on first demand.
How a Construction Company Obtains a Demand Bank Guarantee: Redeure, with an extensive network of Providers, facilitates Demand Bank Guarantees for Collateral Transfer, charging a Collateral Transfer Fee. The Beneficiary and Provider sign a Collateral Transfer Agreement provided by Redeure. After the agreement is signed and the fee received, the Provider instructs their bank to transfer the Demand Bank Guarantee to the Beneficiary’s bank for credit.
With the Demand Bank Guarantee in place, the construction company can confidently approach their bank, presenting the guarantee as security for their credit facility application. The bank, recognizing the high-quality security, is likely to approve the loan. However, if a bank declines, Redeure has relationships with third-party lenders willing to lend against Demand Bank Guarantees.
One significant advantage of utilizing the Collateral Transfer Facility is that these facilities are debt-funded, meaning construction companies retain their equity when using this method to raise capital for projects.
Construction Projects Funded by Redeure and Collateral Transfer: Over the past years, Redeure has successfully facilitated funding for various projects worldwide, including hotels/resorts, residential properties, education facilities, sea ports, mining facilities, and infrastructure projects like roads, rail, airports, and energy plants. Each project is guided by our experienced management team from the initial finance application to successful fruition.
Conclusion: Any construction company with an acceptable business plan and a robust exit strategy can apply to Redeure for project finance. Upon passing due diligence,Redeure can arrange funding for the entire project cost using their popular Collateral Transfer Facility.