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.
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.
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.
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.
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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.