QUESTION: WILL THE TERMS OF ISSUING AND PROVIDING REMAIN THE SAME, OR CAN THERE BE CHANGES?
Answer: This is not a regular banking service. The market of providing financial instruments is constantly on the move and we try to obtain best possible terms at any time. So you must be aware that an indication provided today might not be valid and available tomorrow.
QUESTION: WHAT IS AN SBLC OR A BANK GUARANTEE?
Answer: An SBLC is a Stand By Letter of Credit. A BG is a Bank Guarantee instrument. It has nothing to do with the classical documentary Letter of Credit, which is used for international trading of commodities. An SBLC is the USA format of the well known Bank Guarantee (BG). The SWIFT message type (MT) is SWIFT MT799 for a pre-advice message and SWIFT MT760 for the actual guarantee instrument transmission.
QUESTION: HOW IS AN SBLC OR BANK GUARANTEE USED?
Answer: SBLC’s (and BG’s) can be used to enhance your ability to apply for a line of credit with your bank; in other words, it can be used as collateral when your bank is asking for additional comfort when you ask them to fund your project.
QUESTION: WHAT IS THE TYPICAL VALIDITY PERIOD OF AN SBLC/BG?
Answer: The SBLC/BG is generally issued for 1 year and 1 day (With the option of Rolls and Extension), but can easily be extended up to 5 years, sometimes longer. Once issued the SBLC is transferred to your bank via the SWIFT protocol MT760.
QUESTION: WHAT ARE BASIC CRITERIA FOR AVAILING AN SBLC OR A BANK GUARANTEE?
Answer: To successfully apply for an SBLC you need to be aware of four vital points: You need to have a good project, You need to have a bank funding your project based on the supporting collateral, You need to have the money to pay for the leasing of the Bank Guarantee or SBLC, You need to have a realistic exit strategy to repay the loan and return the SBLC at the end of the term, or renew the instrument, year after year.
QUESTION: IS THERE A DIFFERENCE IN APPLYING IF MY BANK IS AWARE OF THE LEASING TRANSACTION OR NOT?
Answer: YES, you have to provide an RWA that is bank endorsed indicating that the SWIFT and bank fees are blocked in your account. If your bank is not aware of your transaction, and you cannot come up with a bank endorsed RWA, then you will have to pay a USD/EUR 5,000.00 processing fee, after application and following invoice. This fee will be credited towards a commission payment that will be due after you followed through with the transaction and your relevant obligations.
QUESTION: ARE THERE ANY ADVANCE FEES?
Answer: The SWIFT and bank arrangement fees will have to be placed directly with the provider and paid into an account as nominated by the provider after executed contracts and before the SWIFT MT799/760 is sent to your receiving bank. This is fully refundable and credited towards your annual leasing fees.
QUESTION: WHY SHOULD I PAY FOR SWIFT AND BANK ARRANGEMENT FEES?
Answer: Once you have signed the contract with the provider, and the provider accepted you as a potential client and countersigned the contract, you will receive the provider’s corporate refund undertaking and the invoice for the SWIFT and bank arrangement fees are due to be paid. This fee is refundable and will be credited towards the annual leasing fees. As soon as your payment reaches the provider’s designated account, he will block his cash funds or assets for your transaction and applies for delivery of the SWIFT MT799 and MT760 to your bank. The provider will block his cash or assets for your transaction, once you have paid for the arrangements. You will pay for the actual leasing fees only after receipt and verification of the SWIFT MT760 through your own bank within 7 banking days.
QUESTION: WHAT ARE THESE SWIFT AND BANK ARRANGEMENT FEES?
Answer: Depending upon the size of your transaction, these SWIFT and bank arrangement fees apply:
USD/EURO 10M TO 49M USD/EURO 50,000.00
USD/EURO 50M TO 99M USD/EURO 70,000.00
USD/EURO 100M TO 199M USD/EURO 100,000.00
USD/EURO 200M TO 499M USD/EURO 200,000.00
QUESTION: WHEN AND TO WHOM DO I HAVE TO PAY THESE SWIFT AND BANK ARRANGEMENT FEES?
Answer: SWIFT and bank arrangement fees have to be placed directly with the provider into his nominated account. The fees are refundable once the client followed through with payment of the yearly leasing fees
QUESTION: WHICH FEES ARE INVOLVED IN THIS LEASING TRANSACTION OF USD/EUR 5 M TO USD/EUR 250M?
Answer: The Processing Fee – which is only relevant, if your bank does not confirm that you have the SWIFT and bank arrangement fees ready
The SWIFT and bank arrangement fees – which are relevant in any transaction of less than USD 250 million. These fees will have to be placed with the provider and paid into an account nominated by the provider after contract, refund undertaking and invoice, but before the SWIFT MT799/760 is sent to your receiving bank.
The annual leasing fees and broker commission – This is 6% (leasing fee) and 2% (broker commission) which will have to be paid within 21 banking days of receipt of the financial instrument at your receiving bank and verification by your bank.
QUESTION: WHAT RECOURSE IS AVAILABLE IF AFTER REMITTING THE SWIFT AND BANK FEES, THE INSTRUMENT IS NOT ISSUED? IS THIS CONCERN COVERED IN THE CONTRACT BETWEEN THE BORROWER AND THE PROVIDER?
Answer: YES, it is covered in the contract and there is a Corporate Refund Undertaking which spells out the refund in the event the instrument is not issued in line with the contract. Also, there is a 1% penalty payment in the event of default on the contract terms, also if the default is on the side of the provider.
QUESTION: DO YOU STILL LEASE INSTRUMENTS AT $5M LEVEL OR HAS YOUR Q&A SECTION NOT BE UPDATED?
Answer: Instruments can still be leased at USD/EUR 5,000,000 but in that case the provider will have to combine several transactions, which could possibly result in a slightly longer processing period.
QUESTION: IF THE SWIFT AND BANK FEES ARE TO BE REFUNDED, WHY MAKE THE APPLICANT PAY IT UPFRONT?
Answer: Because these are costs that occur and have to be paid to conduct the transaction of the client. Why should the provider have to advance these fee payments for the client who is the ultimate beneficiary of the service? Would the client’s own bank send a (any) SWIFT message for the client, if the client’s account is not in funds for them to deduct the transmission fees right away?