Do you need an SBLC or a Bank Guarantee to back up a loan?

Financial Solutions  > Collateral Support (CS), Credit Enhancement and Guarantees >  Do you need an SBLC or a Bank Guarantee to back up a loan?

You have a bank willing to extend a loan to you?

This is how we can help clients with an established business. A client has an established business and wants to start a project and requires a loan for his business. He talks to his bank. Since the bank worked with the client and knows the client, they like to work with him. But to extend a loan, they ask for collateral which the client may not have.

A Provider lends highly rated and publicly listed securities to a client

A Provider will lend collateral on the basis of a Securities Borrowing and Lending Agreement. Through such a contractual agreement, the Provider (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.

The client’s bank will have to consent to the transaction

The client asks his bank to consent to the Collateral Lending and Borrowing transaction and the conditional payment of the borrowing and lending charges. If the client’s bank agrees, highly rated publicly listed securities will be selected and allocated and will build that basis of the Securities Borrowing and Lending Agreement which will be advised to the client’s bank in the form of a Bank Guarantee or Standby Letter of Credit sent via SWIFT MT760.

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 these securities) and your receiving bank pays for the agreed lending/borrowing fee only after receipt and verification. The instruments backing up your transaction are ultimately purchased particularly for a client and a 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 securities for you and to your benefit, without a firm and valid financial commitment to the transaction. The Client places a Commitment Fee and the Collateral Provider places the Call Option Fee to secure these Securities for the client’s transaction.

The Collateral Provider or Facilitator places a Call Option to buy these securities after the client (the borrower) has committed to the transaction and paid his small share in the form of a fully refundable Commitment Fee. The client is provided with a Pro- Forma Invoice with full details of the securities that will back up the client’s transaction for the receiving bank to verify.

Conditional Payment of the Borrowing and Lending Fee is required to be issued or endorsed by the client’s bank. After the commitment fee has been placed, the client has 20 days to have his bank send the agreed conditional payment as to the instructions given in the Securities Borrowing and Lending Agreement to the Provider or Facilitator.

Upon receipt, 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. The receiving bank pays the lending fee only after receipt of the BG or SBLC and only after verification of the SWIFT MT760.

  • The client now has the required collateral in his bank, and can draw cash to start his project.
  • The Clients Bank returns the collateral fifteen days prior Maturity.
  • 15 days prior of the maturity date of the BG or SBLC, the client asks for an extension for another year, or has his bank return the Securities backed Bank Guarantee or Standby Letter of Credit.

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