The answer to this question is a categorical no. A Bank Letter of Credit is a financial instrument and a Line of Credit is a bank loan facility. All banks, whether here in Geneva, London, New York, or Singapore will confirm these two items are completely different.

Bank Letter of Credit

A Bank Letter of Credit or a Documentary Letter of Credit is a financial instrument issued by a bank. It is a means of payment and is issued only upon receipt of instructions from a banks’ client.

A Documentary Letter of Credit can be either revocable or irrevocable – revocable is very rarely utilised in today’s world of finance. Irrevocable means not capable of being changed or canceled without all the party’s agreement.

A Documentary Letter of Credit is one of the mainstays of global trade. Without a Documentary Letter of Credit, world trade would not grind to a halt but would become exceedingly slow.

A Documentary Letter of Credit is defined as a bank’s irrevocable promise to pay the seller/exporter on behalf of the buyer/importer. The bank will only pay if the seller complies with all the terms and conditions of the Documentary Letter of Credit.

How does a Documentary Letter of Credit Work?

Under a Documentary Letter of Credit (DLC), a seller may be paid a specific sum in an agreed currency by a bank. The seller must submit all the required documentation as defined by the terms and conditions contained within the DLC. A DLC is all about documents pertaining to the export of goods.

The issuing/buyer’s bank will transmit the DLC to the seller’s bank, who will forward a copy to the seller. The seller will then get all the documents together to present to their bank. 

Once all the terms and conditions have been satisfied the bank will pay the seller. The goods will be shipped to the buyer. The seller’s bank will seek reimbursement from the buyer’s bank. The buyer’s bank in turn will claim the same from the buyer.

The following is an example of the types of documentation required by a DLC,

  • Bill of Exchange or Draft
  • Airway Bill (if air freight)
  • Road Transportation Document (if road freight)
  • Bill of lading
  • Pro Forma or Commercial Invoice
  • Insurance Policy and Certificate
  • Certificate of Origin
  • Inspection Certificate
  • Packing List

Many of these documents will be required to be presented in quadruplicate or triplicate, sometimes even more. This is essentially how a Documentary Letter of Credit works. It is completely different to a Line of Credit.

What is a Line of Credit?

A line of credit is a loan facility offered by a bank to its clients. A line of credit is mainly offered to a bank’s corporate clients. It is seldom offered to individuals or private clients.

There are two types of lines of credit:

The first is a Secured Line of Credit. This is where the bank demands security or collateral from the client in return for a line of credit. Security can take many forms such as a charge over floating and fixed assets, a charge on the company’s shares, and/or personal guarantees from the directors of the company.

The second is an unsecured Line of Credit. This is where the bank takes no security whatsoever as a company will have extraordinarily high creditworthiness. However unsecured corporate lines of credit are very rare. 

How is a Line of Credit utilised?

A line of credit is not used to cover a single item loan. Typically, it will cover many facets of the business. If a company is an importer, they may need loans for Documentary Letters of Credit. If they are expanding then loans for factory expansion may be required. 

Essentially a line of credit will allow a company to invest in different parts of the business. It will also allow the lender to see if the borrowings are being spent as per the agreement. It is interesting to note that a line of credit can fund a Documentary Letter of Credit. It is the only time the two will complement each other.

Please read – Important 

Around the world banks are denying businesses of credit facilities, potentially limiting opportunities for expansion. Here at IntaCapital Swiss, we have been successfully offering Collateral Transfer to clients for over a decade. Our globally popular Collateral Transfer Facility utilises “leased” Demand Bank Guarantees…

Demand Bank Guarantees are the only guarantees that can be monetised. Once monetised they can be offered as collateral for lines of credit. Collateral Transfer whilst not new, offers companies access to loans and lines of credit.

If your business is suffering pandemic cash flow problems or finding itself being rejected by banks. Then please contact us today, via our online enquiry form.

On Tuesday 7th and Wednesday 8th September 2021 cryptocurrencies lost their value across the board to the tune of USD300 billion. Bitcoin, true to its reputation for lack of stability, lost 17% on Tuesday 7th September. However, investors are piling back in with Bitcoin trading at USD44,344 but still well below its pre-Tuesday levels of USD52,000. 

Those who are worried suggest that Bitcoin has no intrinsic value except for the fact that coins are in short supply. Can these cryptocurrencies truly perform in the long-term for investors, or will they be a bubble that will eventually burst? Below are some arguments for and against cryptocurrency. 

Arguments In Favour of Cryptocurrencies 

Alternative to Fiat Currencies   

Nearly all cryptocurrency users/followers cite the global financial collapse of 2008 as the reason why cryptocurrencies are necessary. Can we trust bankers and the institutions they work for to not make the same mistakes again. Can we trust central banks to ensure these mistakes do not happen again?  

None of us have any say in the financial policies of the European Central Bank (ECB), the Bank of England (BOE) or US Federal Reserve. Perhaps it makes more sense to ignore the potential mistakes of bankers and put one’s faith in algorithms. 

Privacy and Obscurity  

The identities of the owners of digital coins are encrypted and therefore anonymous. All cryptocurrency wallets, (equivalent of bank account holders), are in the names of pseudonyms allowing the owners complete privacy. There is no supervision or control from third parties such as banks and government oversight bodies. 

Peer-to-peer payments can be made in complete privacy avoiding any bank charges or fees. Many critics of the system have pointed out that many criminals have been tracked by using bitcoin. There are however, other cryptocurrencies that offer stronger privacy controls such as Verge, Monero or DASH. 

One Reason to Invest  

Good news for cryptocurrency investors. Despite the recent decline across the board in the value of cryptocurrencies, one cryptocurrency stood out from the rest. Solana has seen an increase in value over the past one month of 420%. It is understood that the double digit increase in Solana’s value over the past year is due to the underlying technology containing exciting novel features.  

Arguments Against Cryptocurrencies 

Volatility  

One of the favourite arguments against cryptocurrencies is they are too volatile and lack transparency. Indeed, the CEO of HSBC Noel Quinn has advised that they will not be opening a cryptocurrency desk or offer digital coins as an investment for those very reasons. He cited similar reasons for not going into Stablecoins such as Tether. 

Regulation  

Cryptocurrency supporters are proud of the fact that their currencies are completely unregulated and decentralised. But how can you put your trust in something that has no rules and regulations. Many individuals from all over the world have lost billions to cryptocurrency scams. Two examples of this are One Coin and BitConnect where clients lost USD15 billion and USD2 billion respectively. If ever there were adverts for regulation in the cryptocurrency markets, then these two would be right at the top. 

One Reason not to Invest 

In the USA recently, Joe Biden’s USD1.2 trillion infrastructure bill has slowly been making its way through congress. Incongruously there is an important clause within this bill aimed at the American crypto economy. This clause will attempt to bring the crypto economy within the US tax system. If the crypto industry is forced to acquiesce, the result could be complete devastation, forcing investment and innovation to jurisdictions outside the USA. 

Conclusion 

There are obviously arguments on both sides of the cryptocurrency debate. However, cryptocurrency is here to stay, especially as some banks are now jumping on board. Institutions such as Goldman Sachs re-opened their cryptocurrency trading desk in March 2021, and UBS has announced it is looking for avenues where they can offer cryptocurrencies to their clients as an investment product. 

These financial institutions can only lend weight and credence to the crypto revolution. However, one thing is clear, some form of regulation will have to be introduced if the supporters of cryptocurrencies wish to see their influence grow and grow throughout the world. 

When a bank offers a loan against security or collateral, it is known as a Collateral bank loan. The loans are divided into two categories, a private/personal loan or a corporate loan. These are two very distinct and very different types of collateral financing.

A bank loan or collateral bank loan can be made as a result of Collateral Transfer – the borrower will own the security or collateral. Collateral Transfer is where the borrower has “leased” a bank instrument and in most cases a Demand Bank Guarantee is “leased” to obtain collateral financing.

An Explanation of Collateral Transfer 

Collateral Transfer has been used for many years to obtain loans and lines of credit. These facilities can be known as collateral financing but more often referred to as Credit Guarantee Facilities.

Collateral Transfer is a means by which a company can “lease” a Demand Bank Guarantee from another company. The company leasing the guarantee is known as the Bank Guarantee Provider or SBLC Provider. The lessee is referred to as the beneficiary.

The provider and the beneficiary will sign a contract referred to as the Collateral Transfer Agreement. The beneficiary will pay the provider a fee for “leasing” the Demand Bank Guarantee. This fee is referred to as the Collateral Transfer Fee.  The instrument is usually leased for one year and is returned to the provider upon expiry.

Once the contract is signed the provider will instruct their bank to transmit the Bank Guarantee to the beneficiary’s bank. The beneficiary now owns collateral be it for only one year. They can now approach their bankers to obtain finance against the collateral.

A Demand Bank Guarantee is always used in Collateral Transfer and is the only Bank Guarantee that can be monetised. The verbiage contained in the format is extremely precise and exact. It is governed by ICC Uniform Rules for Demand Guarantees, (URDG 758) and is payable on first demand.

Collateral Loans 

These are borrowings granted by a bank to their clients usually against collateral or security. The bank can make two types of loans, a personal or individual loan, who are collectively known as private clients. 

Typically, a bank will have a list of the type of collateral they will demand from their private clients. In the event the client wishes to put an extension on their house, the house will become the collateral. If there is enough equity in the house the bank will grant what is known as a second mortgage.

There are many different collateral loan options available to private clients. Car loans, where the car becomes the collateral. Holiday loans, medical loans, the list is endless. The list of collateral the bank deems permissible is quite extensive. Cash, stocks and shares, bullion, precious stones and jewellery are just a few deemed adequate collateral.

Corporate loans are quite often in the form of a line of credit. Unlike a private client loan the borrower can dip back into a line of credit up to the credit limit. Corporate collateral is often goods receivable, floating and fixed assets and company shares. Quite often a bank will call for director personal guarantees as further collateral.

Overview

In both the above examples the bank is lending against collateral. The difference is a Collateral Bank loan is as explained a loan against a security or collateral. Collateral Transfer provides the means by which the bank can lend against collateral.

If your corporate/business is being denied access to credit facilities due to lack of collateral, here in Geneva, we have Europe’s acknowledged experts on Collateral Transfer…

IntaCapital Swiss have been providing access to Credit Guarantee Facilities for over 10 years. For a decade they have been helping companies access loans and lines of credit. Many companies have suffered the ravages of the pandemic and are in need of help. To discover how IntaCapital Swiss can facilitate funding for your business, fill out an enquiry form today.

What is meant by the Standby Letter of Credit (SBLC) funding process? It means SBLC financing or monetisation. In other words, obtaining loans and lines of credit using a Standby Letter of Credit as collateral.

It must be remembered that a Standby Letter of Credit is also a major financial instrument that underpins global trade. It is utilised as a payment of the last resort. When used for international and domestic trade purposes a Standby Letter of Credit is not “leased”.

If a company wishes to obtain a loan or line of credit they will have to “lease” a Standby Letter of Credit. This they can do from a SBLC provider as explained below.

Explaining the ‘Leased” Standby Letter of Credit or SBLC ‘Lease” Process

“Leasing” a Standby Letter of Credit is the same as “Leasing” a Demand Bank Guarantee. A Demand Bank Guarantee is the only guarantee that can be monetised – both these instruments are used for monetisation purposes. When monetising a Standby Letter of Credit, it becomes an exact replica of a “Leased” Demand Bank Guarantee.

Both instruments will be governed by ICC Uniform Rules for Demand Guarantees, (URDG 758). Both will be payable on first demand and the verbiage contained within the format will be absolutely clear, precise and specific.

Who is an SBLC Provider?

An SBLC Provider “leases” Standby Letters of Credit, (and Demand Bank Guarantees). These companies lend part of their balance sheet to the “leased” bank instrument market. If a company wishes to “lease” a Standby Letter of Credit they will sign a contract with a SBLC provider. This contract is referred to as a Collateral Transfer Agreement. The two parties are referred to as The Provider and the Beneficiary.

Once the Collateral Transfer Agreement is signed the SBLC Provider will instruct their bank to transmit the Standby Letter of Credit. Their bank will SWIFT message the Standby Letter of Credit to the beneficiary’s bank for credit to their account.

SBLC Monetisation

The beneficiary has now taken ownership of the collateral or Standby Letter of Credit. They can now use this instrument as security to raise a loan or a line of credit. These facilities are often referred to as Credit Guarantee Facilities.

The beneficiary can confidently approach their bank with an application for Credit Guarantee Facilities. The bank has been offered first class security and are unlikely to turn down the application.

If the bank does reject the application there are companies in Europe who can supply third party lenders. These lenders are happy to lend against a “Leased” Standby Letter of Credit with Europe’s market leader based here in Geneva, Switzerland.

If you are a company interested in “leasing” a banking instrument, please get in touch via our online enquiy service, a member of our team will be in touch.

The term SBLC ‘Lease’ or ‘Leased’Standby Letter of Credit is not factually correct. The correct term for SBLC ‘Lease’ is Collateral Transfer. Financial historians suggest the term ‘Leased’ was taken from a Commercial ‘Leasing’ Contract, as it closely resembles a ‘Leased’ Bank Guarantee contract.

The term ‘Leased’ was then subsequently applied to a ‘Leased’ Standby Letter of Credit. Although incorrect the term has been used for many years and is now part of daily financial communications.

Collateral Transfer 

It is a known fact that banks have been reducing their loan books for years. Thus, today it is so much harder for companies to obtain loans and lines of credit. In Switzerland we are lucky to have one of the market leaders in Collateral Transfer.

Collateral Transfer is the means by which a company seeking credit facilities can obtain a SBLC “Lease.” Two parties, the SBLC Provider and another company, (referred to as the beneficiary), will sign a Collateral Transfer Agreement.

The SBLC Provider agrees to “lease” to the beneficiary, usually for one year, a Standby Letter of Credit. The beneficiary agrees to pay the SBLC Provider a fee for “leasing” the Standby Letter of Credit. This is referred to as the Collateral Transfer Fee.

SBLC Monetisation

The reason Standby Letters of Credit are leased is so that they may be monetised. SBLC Monetisation allows companies to obtain loans and lines of credit. A “Leased” Standby Letter of Credit will have the exact same features as a “Leased” Demand Bank Guarantee.

The verbiage within the format will be exactly the same as a “Leased” Demand Bank Guarantee. This verbiage will be absolutely precise and exact. The “Leased” Standby Letter of Credit will be governed by ICC Uniform Rules for Demand Guarantees, (URDG 758). It will be payable on first demand.

To monetise the Standby Letter of Credit the SBLC Provider will instruct their bank to transmit the instrument to the beneficiary’s bank. The beneficiary’s bank will apply the Standby Letter of Credit to their account.

Once the beneficiary has taken ownership of the Standby Letter of Credit they can apply for credit facilities. They can approach their bank and offer the instrument as security against a loan or line of credit. Such credit facilities are often referred to as Credit Guarantee Facilities. As stated above the Standby Letter of Credit is now a guarantee of payment. The bank therefore will be happy to approve any loan applications.

SBLC Lease or Collateral Transfer is becoming more and more popular. More and more companies are turning to Collateral Transfer to obtain loans and lines of credit. In this post pandemic world banks are cutting back on their lending making it extremely difficult to obtain credit.

SBLC Lease is not a difficult path to tread. In fact it is a lot easier than most companies imagine. If you are a company suffering cash flow problems, SBLC “Lease” or “Leased” Demand Bank Guarantees may be the answer to your problems.