How do I get a Line of Credit?

For those of you unsure of what exactly a Line of Credit represents, here is a brief description… 

A line of credit is a predetermined amount borrowed from a bank. The loan may be used for a variety of pre-agreed purposes. Unlike a standard loan a line of credit is revolving. In other words, the borrower can keep borrowing up to the credit limit even if they have made repayments.

Applying for a Line of Credit

When a line of credit is applied for, the lender will be requested to fill out copious amounts of forms. The essential details will be how much, the expiry date and the reason(s) for the line of credit. All the documents will be accompanied by an extensive business plan, which must contain a strong exit strategy. This is very important regarding the lender’s due diligence. A strong exit strategy will show the bank that their line of credit can be repaid on the due date.

In most cases a bank will offer a secure line of credit. This means the company will be asked to provide collateral or security to the lender. Once the collateral has been agreed and approved, the client will be made a formal offer.

Due Diligence

Due diligence forms a major part in obtaining a line of credit. The company’s accounts will be gone over with a fine-tooth comb. Updated World checks and Dunn and Bradstreet checks will be carried out on all directors.

Cash flow projections will form a significant part of due diligence. The company must show sufficient cash flow that will allow the Exit Strategy to come into play.

Despite all the above, banks continue to decline loan or credit applications. Banks have been cutting their loan books or they have been kept static for many years. You may find this article somewhat annoying to say the least. 

If a company has their loan application rejected what do they do?

Alternative Funding for a Line of Credit

Here in Geneva, many companies have turned to Collateral Transfer to obtain lines of credit. Not just Swiss companies, but companies from Europe, India and Pakistan, The Middle East, the Far East and S/E Asia.

IntaCapital Swiss are Europe’s leading exponents of Collateral Transfer and are based in Geneva. They have been successfully providing access to lines of credit for over a decade. Their clients are companies that have had their loan applications rejected by their banks and other traditional lenders.

What is Collateral Transfer?

Collateral Transfer is the means by which one company “leases” a financial instrument to another company. The most popular instrument is a Demand Bank Guarantee as this is the only guarantee that can be monetised. Once monetised by a lender the beneficiary of the Demand Bank Guarantee can obtain a line of credit.

If a company wishes to obtain a line of credit utilising Collateral Transfer, they must sign a contract with a Bank Guarantee Provider. The contract is referred to as the Collateral Transfer Agreement. The process is quite simple but IntaCapital Swiss will carry out the same due diligence procedures as banks and other financial institutions.

There has been a significant increase in the number of companies applying for Collateral Transfer, especially during the Pandemic. Collateral Transfer has been around for years but it has now become a significant medium for accessing a line of credit.

Companies suffering cash flow problems and rejection by their banks and other lenders should contact us today, to discover the opportunities that Collateral Transfer can bring to corporates around the world.

What Collateral Types can be used in Collateral Transfer?

Collateral Transfer is the transfer of a financial instrument from one company to another. The lessee or beneficiary effectively “leases” the instrument, usually for one year. The company leasing the instrument is referred to as the Bank Guarantee Provider or SBLC Provider.

The provider and beneficiary will enter into a contract known as a Collateral Transfer Agreement. This allows the provider to transfer the collateral to the beneficiary. 

There are two financial instruments that can be used in Collateral Transfer. A Demand Bank Guarantee and a Standby Letter of Credit. The Demand Bank Guarantee makes up a good 95% of the “leased” bank instrument market.

Providers

Bank Guarantee Providers and SBLC Providers provide collateral for Collateral Financing. These companies have access to a massive portfolio of assets and are recognised as Hedge Funds, Sovereign Wealth Funds, larger Family Offices and Private Equity Funds.

Demand Bank Guarantees

Demand Bank Guarantees are utilised in Collateral Transfer so companies may apply for loans and line of credit. These facilities are often referred to as Credit Guarantee Facilities. The Demand Bank Guarantee is offered as collateral to lenders in return for such facilities.

The Demand Bank Guarantee is a financial instrument issued by banks and is a guarantee of payment. It is the only Bank Guarantee that can be monetised. The verbiage is exceptionally specific and precise. It is governed by ICC Uniform Rules for Demand Guarantees, (URDG 758) and is payable on first demand.

Standby Letter of Credit 

A Standby Letter of Credit is a financial instrument issued by a bank. The main use for a Standby Letter of Credit is to underpin international trade. It is a payment of the last resort. If a buyer/importer is not creditworthy, the seller/exporter will request a Standby Letter of Credit be issued in their favour. 

If the buyer fails to pay for good received, the seller will claim against the Standby Letter of Credit. Please note when used to underpin international trade a Standby Letter of Credit is never “leased”. The seller will only ever be paid if the buyer fails to perform under the terms and conditions of a Standby Letter of Credit.

When a Standby Letter of Credit is used for international trade it is a means of payment. When used in Collateral Transfer as outlined below, it is a guarantee of payment.

Standby Letter of Credit Utilised in Collateral Transfer 

Collateral Transfer is a facility through which a Standby Letter of Credit can be leased for monetisation purposes. Any company wishing to “lease” a Standby Letter of Credit will have to sign a Collateral Transfer Agreement with a SBLC Provider.

When “leasing” a Standby Letter of Credit the instrument takes on the guise of a Demand Bank Guarantee. This is because the Standby Letter of Credit is now a guarantee of payment. The verbiage contained within the format will be a facsimile of the verbiage of a Demand Bank Guarantee.

The Standby Letter of Credit is now governed by ICC Uniform Rules for Demand Guarantees, (URDG 758). It is payable on first demand. This is very important when monetising financial instruments.

Is Your Company Struggling Financially?

Here in Geneva, we are very fortunate to be one of Europe’s leading experts on Collateral Transfer. We have been successfully providing access to loans and lines of credit for over a decade.

Are your banks rejecting your applications for credit facilities? Has the pandemic left your company in a perilous state? Then please contact us via our online enquiry form.

What is the difference between a Collateral Bank Loan and a Collateral Transfer?

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 does the term Collateral mean when used in conjunction with a Loan?

What is Collateral in Loans? This can be broken down into two distinct sectors of Collateral Financing. The first is where a bank lends against collateral or security that an individual or company already owns. This is a straight bank loan or line of credit granted to a client against cash, a home, bonds, shares, commodities or goods receivable.

The second is Collateral Transfer. This is where a company “leases” a bank instrument. These instruments are usually a Bank Guarantee or a Standby Letter of Credit. Collateral Transfer is popular amongst companies who do not have security or collateral for a credit line or loan. 

The bank in both cases is lending against collateral but there is a subtle difference as explained below.

Collateral Financing for Bank Clients who own Collateral

There are two types of bank loans, one for private individuals and another for corporate clients. In both cases the bank will assess the risk and decide what kind of collateral they will accept.

Private/Individual Loans 

Collateral Financing for individuals or private clients is fairly straightforward. A client may wish to upgrade their home and accordingly applies for a loan. The bank will usually grant the loan against equity in the property. The collateral is referred to as a second mortgage.

Alternatively, the client may ask for a loan to buy a car. In this case the car becomes the collateral. A client may apply for a holiday loan. This is usually granted against their salary and broken down into monthly repayments. In this case the salary effectively becomes the collateral.

Corporate Loans

Providing Collateral Finance for corporates has a completely different risk profile. Therefore, collateral offered against loans can come in different forms. The client may wish for a loan to fund a Letter of Credit. If granted, the bank will take paper possession of the imported goods. Once the goods are sold the bank will be repaid.

If the loan is particularly large, then charges against fixed and floating assets can become the collateral for a loan. The bank can even put a charge on the company shares. Alternatively, they can take personal guarantees from the directors as collateral against a loan.

Collateral Financing for Clients who ‘Lease’ Collateral

A bank can refuse loans to clients who cannot put up sufficient collateral. However, companies can “Lease” bank instruments in order to garner adequate collateral. The two collateral types are a Standby Letter of Credit and a Bank Guarantee – most leased instruments tend to be Bank Guarantees.

Companies can enter into a contract with a SBLC Provider or a Bank Guarantee Provider in order to obtain one of these instruments. The provider will transfer the Standby Letter of Credit or Bank Guarantee to the beneficiary’s account. The beneficiary can then obtain collateral financing from their bank. This usually takes the form of a loan or line of credit often referred to as Credit Guarantee Facilities.

Conclusion

In both cases the bank will be lending against security or collateral. The difference is that with Contract Transfer the collateral is “leased” and is usually returned after one year. The company will then have to renegotiate for a second year. 

IntaCapital Swiss SA, have been providing access to loans and lines of credit for over a decade with the last two years, showing an explosion in requests to “lease” Bank Guarantees. Company’s who lack cash flow have turned to IntaCapital Swiss to aid them in their search for credit facilities.

The Benefits of the Collateral Transfer Provider

When a private equity firm or other types of funding institutions make an investment into companies on an international platform, several laws come into play. If an equity company made an investment (or indeed a loan) into a company outside of their own jurisdiction (i.e. they physically lent funds in a different country), they may need Government permissions, licenses and other forms of financial authority registrations in that jurisdiction in order to make such investment or lending commitment.

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