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Use Leased SBLC to Close Your Deals

Standby Letter of Credit (SBLC) can be used for a whole variety of purposes. They are used in trade finance, global finance, project finance, credit enhancement, and so on. Getting access to these cash accounts is another matter. In today’s financial climate it is near impossible for small to medium businesses to get access to large investor cash funds needed in transactions requiring an SBLC.

There is another way: Leased SBLC. Most persons at financial institutions do not understand the nature of leased bank instruments. However, banking institutions utilize the principles of financial asset leasing quite frequently and have for some time.

The concept is simple. Gain access to another party’s cash-backed leased SBLC for a fee or other consideration for a set term. Once the term is up the account is either returned to the original asset holder or it is extended for another term.

Either the asset holder does a joint ownership with the borrower, or the instrument is transferred in ownership outright during the leased SBLC term. This way there is no issue with the ownership of the account.

During the term of the leased SBLC, the bank asset is made available with all the same rights of an account holder. For all legal purposes intended, the new owner may be allowed to lien, encumber, monetize, collateralize, and use the cash account as security.

The bank instrument is often pre-avised by SWIFT MT799 and fully deliverable by SWIFT MT-760 bank to bank. Once the instrument is delivered by SWIFT the lease SBLC term begins. More information on the Lease Procedures here.

Using Leased SBLC is Affordable

A party can gain access to leased SBLC with much less capital investment: Usually the fees range anywhere from 1 to 3 percent a month to 12 to 15 percent per year. This makes utilizing a leased bank instrument a much more accessible investment.

However, having the necessary capital is not the only consideration a borrower must consider. The asset holder will want to ensure the account at the end of the term is free of any liens or encumbrances. This means any loans, guarantees, and obligations against the debt asset are released prior to the term expiration.

If the leased SLBC asset is to be used as a cash collateral account it is not enough to provide a personal or corporate guarantee the account will be free and clear at the end of the lease term. Most asset holders require a bank undertaking that clearly illustrates a bank commitment the account will be free and clear. And still, not any bank undertaking will do. Usually the bank commitment must come from a financial institution given high ratings from a respected rating agency like Standard & Poor’s.

The terms and conditions of the leased SBLC agreement will vary from asset holder to asset holder and transaction-use to the next. Generally speaking, with a highly rated bank undertaking, the borrower becomes the owner in fact of the cash asset and may use it in almost all ways they would normally had they had equity ownership with exception to selling, transferring, or make drafts against the account.

Disclosure When Using Leased SBLC is Important

Some common problems parties using a leased SBLC may encounter could be disclosure of the nature of ownership with a third party. In other words, you would not have a leased home or car and list it as an owned asset outright. Neither would you list a home with a mortgage loan against the title and claim it is a home free and clear.

Proper disclosure of the nature of the bank instrument ownership is crucial in finance. False representation can not only waste time in a transaction, but it can also be construed as willful intent to misrepresent and defraud the nature of a financial asset, which is a financial crime.

When going into a financial transaction it is wise to represent clearly with all parties involved the nature of ownership of the leased SBLC. If one of the parties has never worked with a leased instrument before educating them of the viability of the financial asset is advised. If for whatever reason the party still does not agree, finding another party who has successful history with them is recommended.

Balboa Trade provides intelligent financial solutions for gaining access to leased SBLC and other financial assets. By making the provisions for getting access to the cash account provider, businesses can now enjoy the same credit enhancement as large corporations. The obvious advantages are better financing terms and credit worthiness as well as access to trade and purchase transactions previously not available.

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