Many companies use a Leased Standby Letter of Credit for monetisation, and as such the verbiage is different from the normal use of this instrument, as it reflects the verbiage used in a Demand Bank Guarantee, which is governed by ICC Uniform Rules for Demand Guarantees, (URDG 760). This enables the Beneficiary of a Standby Letter of Credit to approach their bankers with an application for a capital injection, a bank loan or a line of credit, also referred to as Credit Guarantee Facilities.

Whilst the verbiage of a Standby Letter of Credit and a Demand Bank Guarantee are the same, so are the mechanics of the transaction. Two companies enter into a transaction whereby the owner of the asset, (the Provider), instructs their bank, (The Issuing Bank), to transfer on a temporary basis, a Standby Letter of Credit in favour of another company, (the Beneficiary), for their account at their bank, (The Receiving Bank). The Provider will have the ownership of the instrument returned on expiry of the Standby Letter of Credit.

To further understand the Leased Standby Letter of Credit transaction, please got to “See What Is a Leased Bank Guarantee”, where a full explanation is provided.

The general assumption when monetising a Bank Guarantee or a Standby Letter of Credit, is that monetisers prefer a Bank Guarantee as a Bank Guarantee is non-transferable. Importantly for the Beneficiary, the LTV, (Loan to Value), is dependent on the contingent liability, of the underlying transaction.

It is important to understand the difference between a Standby Letter of Credit, (SBLC), and a Documentary Letter of Credit, (DLC), where payment under Letter of Credit is contingent on the performance of the seller and payment under a Standby Letter of Credit is contingent on the lack of performance of the buyer. The Bank Guarantee is a guarantee of payment and both a Standby Letter of Credit and Letter of Credit are a means of payment, but when monetising a Standby Letter of Credit, that to becomes a security for payment.

Many businesses across the globe are struggling to access loans and lines of credit, IntaCapital Swiss, and their dedicated team of financial experts, have brought access to these facilities through their ground breaking financial model, the Collateral Transfer Facility, which utilises the use of both the Bank Guarantee and Standby Letter of Credit.