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QUESTION: WHAT IS CREDIT ENHANCEMENT?
Answer: Credit Enhancement is a method whereby a company attempts to improve its debt or credit worthiness. Through credit enhancement, the lender is provided with reassurance that the borrower will honour the obligation through additional collateral, insurance, or a third party guarantee. Credit enhancement reduces credit/default risk of a debt, thereby increasing the overall credit rating and lowering interest rates. It enhances trade finance and can be useful to trigger project finance.
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QUESTION: WHAT PURPOSE DOES AN INSTRUMENT SERVE WHICH IS NOT CALLABLE?
Answer: You are availing an instrument on the basis that the instrument is not called, even though it legally could be called, but you obtain it for your own credit enhancement. You will certainly not expect that an instrument availed on the basis of an “Issuing Fee” will actually be available to pay for your eventual debts of up to 100% of the face value of the trade facility instrument.
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QUESTION: HOW IS CREDIT ENHANCEMENT APPLIED?
Answer: Credit enhancement is used to obtain better terms for an outstanding debt. Securitization, posting collateral and obtaining external credit enhancement such as a letter of credit are some basic forms of credit enhancement. Firms may also increase cash reserves or take other internal measures to uphold superior solvency ratios.
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QUESTION: WHAT IS A CREDIT ENHANCEMENT INSTRUMENT?
Answer: A trade finance instrument can be a powerful business tool when used for enhancement purposes, to enhance your credit position with your bankers (or at your supplier’s bank), or to improve your balance sheet. Only a solid financial standing of the applicant/client and a proper legal structure can build the required framework to achieve this.
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QUESTION: WILL THE PROVIDER PAY FOR MAY DEBTS IF THE INSTRUMENT IS CALLED?
Answer: Think about it, the majority of bank instruments are for an amount of USD/EURO 100M and more, and are owned by the most affluent individuals in the world. Do you really think they would allow you to use it as collateral for risky transactions, all for just a 10% fee? No, that would not justify the risk. Any transaction is structured in the way that YOU ORDER A SWIFT and the provider arranges that SWIFT MESSAGE as ordered by you. You will avail trade finance, but you definitely have to pay for your debts yourself.
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QUESTION: I GENERALLY OPEN LETTERS OF CREDIT THROUGH MY BANK. HOW ARE YOUR LETTERS OF CREDIT DIFFERENT?
Answer: The letters of credit that we open are opened using our bank accounts at prime banking institutions. When you open the letter of credit through your bank, you use your credit line. When you open through us, you use our credit lines.
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QUESTION: WHY DO I NEED TO PAY YOUR FEE BEFORE YOU OPEN THE LETTER O CREDIT? CAN’T I TAKE YOUR FEE OUT OF THE PROFITS OF OUR TRANSACTION?
Answer: We do not participate in the transactions of our clients as a party to the transaction other that a provider of certain financing. Therefore, we do not participate in the profits of our client’s transactions. Our fees are the same regardless of the profit margin in the transaction.
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QUESTION: CAN I CANCEL MY LETTER OF CREDIT AFTER IT HAS BEEN OPENED?
Answer: All of the instruments that we issue are irrevocable and cannot be cancelled except by the beneficiary.
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QUESTION: WHAT TYPE OF COLLATERAL DO YOU REQUIRE TO OPEN A LETTER OF CREDIT?
Answer: In most case we do not require a specific collateral deposit to open a letter of credit. We offer transactional based finance. When a client wishes to open a letter o credit, he presents us with the details of his transaction so that we can make a decision about the transaction on its merit. The final decision by our company to enter into a transaction is made according to a set of criteria.
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QUESTION: WHAT IS THE CHARGE FOR OPENING A LETTER OF CREDIT?
The letter o credit charge depends on a number of factors. We will provide you with our best terms once we have evaluated your “Application And Compliance Questionnaire”.
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QUESTION: WHAT IS THE MAXIMUM SIZE LETTER OF CREDIT THAT YOU OPEN?
Answer: We are able to open letters of credit of almost any size. We consider the complexity of the transaction; the goods that are being traded; and, other factors having to do with the parties to the transactions and where they take place.
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QUESTION: FOR WHAT TYPE OF GOODS DO YOU OPEN LETTER OF CREDIT?
Answer: We can open letters of credit for any type of goods provided they fall into our ethical and legal criteria. That said, we will not get involved in transactions involving weaponry or ammunition under any circumstances.
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QUESTION: I OPENED A LETTER OF CREDIT TO MY SUPPLIER, BUT HE DID NOT SHIP THE GOODS. WILL YOU REFUND MY FEE?
Answer: Once the letter of credit is opened your fee cannot be refunded. We recommend to all of our clients that they need to assure themselves of their supplier’s ability to perform before opening any banking instruments to them.
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QUESTION: DO YOU ISSUE INSTRUMENTS FOR INDIAN CLIENTS?
Answer: Yes, we can also issue instruments for Indian clients if they qualify and accept our terms for an Application and Delivery of the instrument.
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QUESTION: WILL THE TERMS OF ISSUING AND PROVIDING REMAIN THE SAME, OR CAN THERE BE CHANGES?
Answer: This is not a regular banking service. The market of providing financial instruments to enhance trade finance or support and trigger project finance is constantly on the move and we try to obtain best possible terms at any time. So you must be aware that an indication provided today might not be valid and available tomorrow.
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QUESTION: WHAT IS AN SBLC OR A BANK GUARANTEE?
Answer: An SBLC is a Stand By Letter of Credit. A BG is a Bank Guarantee instrument. It has nothing to do with the classical documentary Letter of Credit, which is used for international trading of commodities. An SBLC generally is the USA format of the well known Bank Guarantee (BG). The SWIFT message type (MT) is SWIFT MT799 for a pre-advice message and SWIFT MT760 for the actual guarantee instrument transmission.
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QUESTION: HOW IS AN SBLC OR BANK GUARANTEE USED?
Answer: SBLC’s (and BG’s) can be used to enhance your ability to apply for a line of credit with your bank; in other words, it can be used as collateral with your bank, or when your business partner is asking for additional comfort.
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QUESTION: WHAT IS THE TYPICAL VALIDITY PERIOD OF AN SBLC/BG?
Answer: The SBLC/BG is generally issued for 1 year and 1 day (With the option of Rolls and Extension), but can easily be extended up to 5 years, sometimes longer. Once issued the SBLC is transferred to your bank via the SWIFT protocol MT760.
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QUESTION: WHAT ARE BASIC CRITERIA FOR AVAILING AN SBLC OR A BANK GUARANTEE?
Answer: To successfully apply for an SBLC you need to be aware of four vital points: You need to have a good project, You need to have a bank funding your project, you need to have the money to pay for the “Issuing Fees” of the Bank Guarantee or SBLC, you need to have a realistic exit strategy to repay the loan and return the SBLC at the end of the term, or renew the instrument, year after year.
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QUESTION: WHAT TYPE OF PROOF OF FUNDS CAN BE ARRANGED?
Answer: We can arrange an online account or a Certificate of Deposit at a multi-billion dollar vencap firm. Written Verification of Deposit (VOD) is available, as are account statements and access to an online account summary. Confirmation letters, verbal and fax verification are also provided. SWIFT message to SWIFT SCORE member banks providing account status and transaction details are available at an additional cost. Terms and Conditions apply for POF.
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