Saturday, December 10, 2016

Mistakes To Avoid When Getting Bank Guarantee Funding

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A Bank Guarantee or BG is a form of surety or promise provided by a bank or other financial institution. With this financing option, the bank ensures that the debts of an individual or company will be paid off in case they are unable to meet this obligation.

Bank Guarantee funding can be a beneficial financing solution for businesses. However, to make sure that you get the most from this financing option, you need to avoid some mistakes that can cost you and your business a lot:

Failing to notice that the procedures on the BG do not match.

In the event that the delivery procedures of the BG issuer don’t exactly match with the Bank Guarantee Monetizer, Funder or Discounter, you will never get the BG delivered because the two parties are incompatible with each other. The last thing you want to happen is for the transactions to be caught in a blame game of back and forth between Bank Guarantee Issuer and Bank Guarantee Funder, who each point the finger at one another. You can avoid this problem by going over the procedures carefully and getting an expert to read these as well.

Getting a BG that has the word “Leased” written on it.

According to financial and banking exerts, Leased Bank Guarantees can be monetized if they do not have the word "leased" written on the MT799 or MT760. If you buy a BG that has the word “leased” in the Bank Guarantee text when it is delivered to the funder or monetizer, they won’t get anything.  You simply have a worthless piece of paper you can’t use. As such, be on the lookout for the word “leased” on your BG once it is issued.

Being issued a BG that is neutered.
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Unfortunately, some financial institutions issue neutered Bank Guarantees. This is a type of BG that can only be used for credit enhancement on a company’s books but can never be monetized or traded. This can be a big shock to any company, especially if you do not have any plan B when it comes to paying for something.

Having a BG that has no CUSIP or ISIN Number.

Lastly, there are some Bank Guarantee monetizers or funders that will only accept BGs with CUSIP or ISIN Numbers. This means they will not accept a fresh cut bank guarantee, only seasoned instruments – BGS that have been created by one bank and issued to a second bank who then registers the CUSIP and ISIN numbers of the instrument. Although seasoned Bank Guarantees cost more since they have to be passed through two banks to become seasoned and are generally only available to be purchased from secondary owners not direct from the Bank Guarantee Issuing Bank, this is a safer and surer option of avoiding a lot of hassles and issues. 


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