Things to Look Out For Before You Monetize Your Bank Guarantee

Investing in bank instruments like bank guarantee or an SBLC is one of the most important investments you make and you need to make sure that you are making no mistakes. Although it might look like an easy process, there might be some hidden rules and regulations that you have to look properly before making an investment.

However, when you are monetizing a bank guarantee, there are a few things you need to keep in mind and look out for. Here are those things –

Understand the difference between a bank guarantee and a leased bank guarantee – Before you are investing in any sort of bank guarantees, make sure you are looking out for the word “leased” written in the guarantee. Do not buy a bank guarantee which is leased or has the word “leased” mentioned in it. You cannot use a leased bank guarantee anywhere and it will be of no use if you buy the same. Therefore you should make sure that you know exactly what you are buying and be cautious of the terms and conditions of the same.

Never buy a neutered bank guarantee – You should never buy a neutered bank guarantee. A lot of financial institutions offer neutered BG and when someone doesn’t have much idea of investing in one, they end up buying a neutered bank guarantee. This is the reason why you should be pretty informative about where you are investing and ask your agent or the bank every little detail you might need before making an investment.

Making sure that the procedures match – When you see that the delivery process of the issuer of the Bank guarantee doesn’t match with the procedures of the people who helps you monetizing the Bank Guarantee, then do not buy that BG. If you do so, you may not be able to be benefited with the monetization and that will end up hurting your profit as they are not compatible with each other. Both the parties will end up blaming each other and you will be the one to suffer.

These are just a few things you need to keep in mind while you are investing in a bank guarantee. Keeping these things in mind will help you understand the process better and you won’t have to worry about being in a loss and wasting money.

Bank Instruments and Its Various Other Aspects

When we talk about bank instruments we mean various ways to monetize your accounts. If you want to know the literal meaning of bank instruments, then it means assets, which are tradable and negotiable items in terms of security.
Let’s see what an instrument actually is –
1. An instrument is a means by which something of value is transferred, held or accomplished.
2. An economic variable that can be controlled or altered by government policymakers in to cause a desired effect in other economic indicators.
3. A legal document such as a contract, will or deed.

There are some of the terms where the monetization can be arranged against financial instruments such as BG’s- Bank Guarantees, MTN’s- Medium Term Notes, SBLC’s- Standby Letter of Credit, LOC’s- Letter of Credit, CD’s- Certificate of Deposit, Zero Coupon Bonds, Treasuries and other instruments as well. The only thing that is important is that these instruments must be owned and not leased.

When we talk about the bank instrument monetization, we need to understand the things that are involved while monetizing the instrument. It doesn’t matter what kind of bank instrument you are monetizing, but any bank instrument can be monetized in 10 days time. However, some can be monetized within just 3-5days depending on what kind of instrument you are using.

Then again, it also matters that whether or not the client is planning on taking the funds into a dynamic trade, managed buy or sell trading program with some high yield returns.
There are plenty of terms and conditions when it comes to the monetization of the bank instruments. They can be termed as followed –
1. The instrument has to be owned.
2. Any instruments from any top banks or finance company is widely accepted.
3. The financial instruments have to be owned.
4. There should be no up-front fee for the same.
5. There are some of the flexible delivery methods including the MT-760, DTCC free transfer etc.
6. There is no mandatory project requirement for the instrument.
7. The instrument must be from the top 50 World Bank instruments only.
8. Non-recourse and recourse monetization is available for most of the instruments.
9. The client must be in full control of the instrument and will also be able to deliver the instrument to the financial institution.
10. The turn time for the instrument is 10 days or even less.