The phrase “lease bank instrument” refers to the process of borrowing a debt instrument from its sole beneficiary.  Since the owner of the bank instrument is allowing another person to use their asset, they charge a fee for the service. Typically, bank instrument fees vary based upon the “provider” and the term of the lease. In most cases, leased bank guarantees are used for opportunities which require proof of collateral upon application. These opportunities can be loans, project funding, private placements and other related markets.

Over the last few years, leased bank instruments have flooded the private placement marketplace. Whether it is SBLC’s, MTN’s, or BG’s, we hear brokers pushing these deals every day. What is the problem with bank instrument leasing you may ask? Well for starters, they don’t work in most of the scenarios they claim to be used for.  The fact is, no one will assign you full control of a 100M bank instrument for 3% upfront. It just doesn’t make sense! If anything, they’d block the bank instrument in your favor via MT 760, which would prove collateral was on hand, but you’d have NO CONTROL over the asset.  Once the bank instrument is blocked via MT 760, it can’t be blocked again until it’s returned unencumbered to the owner.

Despite what we try to teach investors, we’re sure some of them will still try to lease bank instruments. The truth is, you should take the 300k you would spend on the leased bank instrument and go to Vegas! You’d have better odds there, by far. If you are going to lease a bank instrument, please be safe. We are only reiterating this point for one reason, your safety.

If you are interested in learning more about leasing bank instruments, take a look at the articles in our Blog. This will give you a grip on the realities of leased bank instruments, while providing invaluable education for your future.