Standby letter of credit (SBLC) financing or monetization of bank instruments including bonds, SBLC, BG, LC or SKR to finance projects is on the rise. Although loans from traditional institutions have practically stagnated in production, the monetization of the instruments is on the rise; And for good reason.
SBLC financing or monetization of bank instruments is very popular because there are no traditional credit requirements, asset requirements or down payments associated with conventional financing or loans. However, there are very strict requirements in the approval process which includes a favorable compliance report associated with national security and international money laundering laws.
The process of monetizing bank instruments involves converting a collateralized instrument, usually backed by cash, a collateralized account, or a collateralized asset, into something legal tender. Many times, the secured or cash-backed account or asset is held in a trust or other account from which the owner cannot recover additional funds under the account agreement.
Why monetize? As an example, in the economic security of the market 5 years ago, hospitality financing was a very tedious and difficult industry to finance, but still possible. Today, hotel financing is nearly impossible for those looking for new purchases, refinancing, remodeling, or construction. If you currently own a hotel property, the chances of obtaining financing are greater, but depend on the performance that is spread over a period of 3 to 5 years. SBLC funding for hospitality projects or instrument monetization may be the solution, as there are no performance requirements; the execution is based on the guarantee of the instrument and not of the property.
This also applies to residential developments that are in intermediate stages of construction and paralyzed due to the impossibility of continuing to have previously arranged lines of credit. Commercial developments will also benefit from this method of financing, as there are no “anchor” requirements and no tenant lists to supply. The financing of alternative energy projects is particularly viable for financing sblc or through the monetization of a bank instrument. These exceed the tangible asset requirements of traditional funding sources.
The list is endless in terms of uses of funds for projects and developments. For example, monetization can also be a viable solution for community economic development, housing and job creation, as well as debt consolidation for corporations and businesses.
A few words of warning for those looking for banking instrument providers and monetizing companies. Fraud in this industry is on the rise. Instruments must be issued by the top 25 global banks. Leased instruments can be monetized, but the express written permission of the holder of the instrument and the issuing bank is required, evidencing the agreement between all parties and the express knowledge of the intention to use the instrument. There must also be a contract issued to the client after approval, outlining the terms and conditions of instruments and monetization.
Finally, fees must be deducted from revenue when monetizing so there are no upfront costs to you. Instrument settlement usually results in escrow fees or, when settled internationally, an MT 103/23 will suffice. When all the elements are in place, monetizing your instrument should be a safe alternative to conventional financing.