"Applied Credit Enhancement in the Commercial Sector"
Your receiving bank has to consent to all the terms of the transaction. Your bank has to be informed and in agreement that you borrow collateral in the form of an SBLC or a Bank Guarantee to back up a loan. The availability of such collateral is always for a pre-defined term, usually for 350 days, and your qualification for Applied Credit Enhancement in the Commercial Sector is heavily weighted toward your project and your own credit worthiness. The aim of the service is to increase the company's capital stack to enable project funding. During the project building and implementation process, equity increases in value within the capital stack and eliminates the requirement for (borrowed) collateral.
The receiving bank will have to issue a conditional payment for the borrowing and lending charges and they will have to guarantee for the safe return of the collateral after the agreed upon period of time. Securities will be advised to the receiving bank in the form of a Bank Guarantee or Standby Letter of Credit which will be issued by a top rated world bank via SWIFT MT760 and will be available unrestricted to be used as collateral during the lending period and as to contract. Conditional Payment of the Borrowing and Lending Fee has to be issued or endorsed by the client’s receiving bank. The client’s bank releases payment for the Borrowing and Lending Fees only after verification of the SWIFT MT760. The receiving bank now has the required collateral and the borrower can draw cash to start his project. 15 days prior of the maturity date, the BG or SBLC service is renewed on the same terms for another year, or the client’s bank returns the Bank Guarantee or Standby Letter of Credit unencumbered to the issuing bank.
Once your bank is in agreement to support your transaction accordingly, a Provider, an Investor or Facilitator will lend collateral to you on the basis of a Securities Borrowing and Lending Agreement. Through such a contractual agreement, the Provider, the Facilitator, an Investor or a Securities Lender wants to make sure that he is paid a lending fee and that the receiving bank will return the collateral at the agreed upon time.
Your bank definitely will have to consent to the transaction and you will have to accept standard procedures if you wish to apply Credit Enhancement in the commercial sector. You will have to ask your bank to consent to the Collateral Lending and Borrowing transaction and to their agreement to issue or endorse any of the 4 optional and conditional payment undertakings that can be used in this transaction. If your bank agrees, highly rated publicly listed securities will be selected and allocated. These top rated securities will build the basis of the Securities Borrowing and Lending Agreement, and the financial instrument that will be issued for you.
For your transaction, clearly identified, top rated, publicly traded and listed prime bank securities are ordered by a Securities Dealer on the secondary market for your transaction and are placed into their securities account and paid for simultaneously as these securities are advised to your receiving bank (in the format of a Bank Guarantee of Standby Letter of Credit, cash backed by the investor’s cash funds and these securities and your receiving bank pays for the agreed lending and borrowing fee only after receipt and verification.
The instruments backing up your transaction are ultimately purchased for your specific transaction. This is why the client (the borrower) will have to commit to the transaction and place a commitment fee.
No investor would want to buy specific securities for you and to your benefit, without a firm and valid financial commitment to the transaction. If you are not considered a qualified client, you will be requested to place a Commitment Fee and the Collateral Provider places the Call Option Fee to secure these Securities for your transaction.
The Collateral Provider or Facilitator places a Call Option to buy these securities after you have committed to the transaction and you transferred this small share to the facilitator in the form of a fully refundable Commitment Fee. You will be provided with a Pro- Forma Invoice with full details of the securities that will back up the transaction for the receiving bank to verify.
A Conditional Payment of the Borrowing and Lending Fee is required to be issued or to be endorsed by your bank. After the commitment fee has been placed, you have 20 days to have your bank send the agreed conditional payment as to the instructions given in the Securities Borrowing and Lending Agreement as instructed by the Provider.
Upon receipt, and if due diligence performed between banks remains positive, the Provider sends a fully cash backed Bank Guarantee or Standby Letter of Credit which is issued on the back of the agreed securities.
The client’s bank pays for the Borrowing and Lending Fees after the SWIFT MT760 has been transmitted, received and verified. You bank pays the lending fee only after receipt of the BG or SBLC and only after verification of the SWIFT MT760.
Upon receipt of the instrument at your bank:
- You now have the required collateral in your bank, and you can draw cash from your credit line to start your project.
- 15 days prior of the maturity date of the BG or SBLC, you ask for an extension for another year, or have your bank return the Securities backed Bank Guarantee or Standby Letter of Credit.
This collateral service is available to any qualified clients with a business of substance. If you have an established business and you want to start a project and require a loan for this business, then you will talk to your bank. Since your bank worked with you probably for years, they like to work with you on your project as well. But to extend a loan, they may ask you for collateral which you may not have. In that case, you should talk to them about the collateral that can be available to you.
- backed by top rated securities and the investor’s (lender’s) cash
- delivered to your acceptable receiving bank
- for an agreed period of time
- on the basis of a Securities Borrowing and Lending
- delivered in the form of an SBLC or a Bank Guarantee issued by a top rated bank
- transmitted via SWIFT MT760
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