Leased Bank Guarantee
The phrase “lease bank guarantee” refers to the process of borrowing a “BG” for a predefined price and time period. Once the owner leases the bank guarantee to the borrower, they collect a fee for the time their asset is encumbered. Since the borrower has the asset in their name, they can then use the leased instrument as proof of collateral. Though this may work in some scenarios, leased bank instruments rarely work for private placement, project funding, hard loans, and other attempts at liquidity.
Over the last few years, investors have started leasing bank instruments left and right, turning the private placement business into the “Wild Wild West”! The problem is, even after years of endless pursuit, very few have been successful with leased bank instruments. The reason is simple, and in fact, it’s common sense. Leased bank instruments are typically blocked in favor of the investor. Once the investor has received the MT 760, the funds are frozen and can NOT be touched. Though this may be sufficient for opportunities which simply require proof of collateral, in ALL OTHER cases, it would not work. The reality is, once the bank guarantee is blocked in your favor, you can’t block it again! Unless you have a very creative way of monetizing something you don’t own, good luck.
In this brief definition, we have outlined the facts of bank instrument leasing. Though we would never lease bank instruments, we know that some of our readers still may give it a shot. If you are one of them, please be cautious and diligent in your leased instrument voyage. It never pays to jump the gun, especially in the niche of bank instrument leasing.
If you would like to learn more facts about leased bank instruments, take a look at the articles in our blog categories. This will teach you the facts, risks, and myths associated with bank instrument leasing, and far more.