One thing I have noticed about this niche of finance is that common sense does not prevail. Allow me to be even more frank. Most people don’t know what they are doing.
You heard me right.
Many brokers think that if they have an instrument, then someone who is involved in monetizing bank instruments will automatically give them several million in cash and it’s all over. In reality however, the truth is much different.
People who purchased a Bank Guarantee, a Standby Letter of Credit, or other bank instrument are often shocked to learn that their newly purchased instrument was never designed to be monetized and is therefore worthless for their intended purposes.
Bank Guarantees can be worded specifically for monetization, i.e. to secure credit lines. Not all Bank Guarantees are intended for monetization so it is important to understand what you paying for and what you are getting to ensure that it will work for your intended purpose.
If you don’t have an instrument, we suggest acquiring your BG from Harvest
The truth of the matter is that having the money to buy an instrument doesn’t mean that your project will get funded or that your bank instrument can or will be monetized. Of the limited providers who work with Monetizing Bank Instruments, it is very possible that none of them will be interested in monetizing your Bank Guarantee.
First things first. You should know who will be monetizing your instrument before you purchase it. You should also understand that not all BG’s or SBLC’s are the same.
Pay attention to where the BG is coming from. Is it from London or Lagos? The jurisdictions and legal ramifications are not the same and you should know and understand the differences. This will also affect the instrument’s cost and acceptability to third parties.
Read the language and text of your SWIFT MT-760, Bank Guarantee or SBLC carefully. Pay attention to every word and have it reviewed by professionals and the beneficiary prior to paying for anything. Verify if the bank instrument is intended for monetization and find a supplier who will monetize it in advance.
This is where the confusion and frustration sets in. You have your BG or SBLC and your monetizer fell through. You now need another provider that specializes in monetizing bank instruments.
Harvest Finance can help, however, Your Bank Guarantee is not enough. Just showing someone your BG or SBLC text will not be sufficient to establish a credit line. Of course the text is the first thing we will look at but its far from the only thing we will consider.
Several things. A business plan and solid relationships are a good start. In other words, you must have an actual project and a professional business plan.
If your entire business plan was to get the BG and then send one line emails to companies involved in monetizing bank instruments in hopes of finding someone to give you cash, then we can’t help you. Even if you already have a BG.
If you have a solid written business plan for a new company in the pharmaceutical industry (for example) with several million dollars from investors with years of experience and the BG is to help provide investor guarantees for the first year until the initial contract manufacturing is complete, then Harvest Finance may be able to help.
Import Export transactions are another good example of successfully monetizing bank instruments. This is because there is usually a product(s) with a purchase contract. This shows a clear business plan with a verifiable way to produce income within a pre-negotiated time frame. These are the type of projects and transactions that interest investors to the point that they will be more willing to monetize your instrument.
The key is that you must have your paperwork together and you must have a tangible way to make money from your project or investment. Ultimately the investor must like and believe in your project. Anyone can purchase a Bank Guarantee but only those who have done the hard work will actually get in monetized.
If you want someone to block millions of dollars to set up a credit line for you, a one line email and a BG is not going to be enough.
Be prepared to submit a full CIS (or Bio/Application) on your company and its officers along with a complete business plan and the text of your BG or SBLC. Explain how you acquired the BG and why you need it monetized.
Go into detail about how you plan to exit this strategy and how you intend to return the instrument at the end of the term. Be aware that you may need to show POF (bank statements, not blocked funds) in many cases.
If you are interested in obtaining a Bank Guarantee (BG) or Standby Letter of Credit (SBLC), contact HARVEST FINANCE here.
If you wish to monetize an instrument you already are in possession of, and you have the correct information listed above, contact us here.
SWIFT is an acronym for ‘Society for Worldwide Interbank Financial Telecommunications’. Formed in 1973, SWIFT started in Belgium, with its main headquarters still currently in Belgium. SWIFT was formed as a solution to a growing need for an internationally acceptable communications network that could facilitate business transactions internationally in a quick, secure and effective manor.
SBLC stands for Standby Letter of Credit and is completely different from a Line of Credit or a Documentary Letter of Credit. An SBLC’s use and function is similar to a Bank Guarantee (BG). Due to regulations, US financial institutions are not able to offer many or any BG services so changing the legal wording of Letter of Credit became a crafty way to get around the laws. Consequently Standby Letters of Credit began to be issued as a sort of legal loop hole that continues to be used today. The code for an SBLC is SWIFT MT760.
The MT-760 is a type of SWIFT message that is often requested in import and export trading due to the fact that it functions in a similar manor to a Bank Guarantee, although it carries with it a significantly higher level of risk for the issuer (typically the buyer), and a reduced level of risk for the recipient or beneficiary (typically the seller). In laymen’s terms, a MT-760 is a SWIFT message, which guarantees that a bank will make payment in favor of a client of another bank.
Having a professional that knows what banks are willing to issue a SWIFT MT-799 and what requirement they have will save you a lot of time and heartache. An arrangement is made with the purchasers’ bank to have an MT-799 wired to the seller’s bank. Many banks are unwilling to issue MT-799′s, for there mere reason that doing so would make them liable for the full cost of the said transaction, leaving the bank liable for millions of dollars. A bank will not issue an MT-799 without collateral to secure their interests. Bank charges and fees vary but be prepared, this process is certainly not free.
A Standby Letter of Credit is very similar to a Bank Guarantee and are employed in similar situations. A Bank Guarantee or Banker’s Guarantee (BG) is a banking arrangement where a bank agrees to substitute its own credit in place of its client. Different from a traditional Line of Credit (which is intended to be paid) a Bank Guarantee is a contingent obligation. We say contingent meaning that it is dependent on the happening of an event, which may or may not actually ever occur. More often than not a BG is not paid because the event, project or deal does not happen, i.e. the deal never goes through or the project never gets off the ground.
Depending on availability, the Bank Instrument/Collateral offered is in the form of Certificate of Debt and can be a BG ,MTN, Bond, Note, CD with delivery via Swift MT 760. Bank Instruments can also be delivered in the form of a Bank Guarantee or a Proof of Funds. Please contact us to inquire and learn more about our services.
Bank Instrument monetization is the process of liquidating bank instruments and converting them into legal tender. Harvest Finance can monetize most owned bank instruments to be used for a number of reasons ranging from project finance, private placement, or import/export among others. On average this can be accomplished in 10 days or less.