In its essence, this methodology dates back to the 1940s after WWII, when heads of banks and states came together to brainstorm ways to generate money to rebuild Europe that was so severely damaged by the war. This was the Bretton Woods meeting.
The methodology can be used to raise funds for infrastructure projects all over the globe. Specialized trading programs are used by large financial institutions like the World Bank or the IMF to generate enough cash to fund large infrastructure projects.
It is common to have a misconception about how to monetize bank instruments. Most people, including brokers, don’t know enough to monetize them.
Misconceptions about Bank Instruments
Many people believe that they can cash in a bank instrument, such as a Standby Letter Of Credit from a bank. They expect the Monetiser to give them several million in cash. But the truth is that it’s not so.
Many people buy a Standby Letter of Credit only to find out that the bank instrument they purchased was not intended to be monetized. Therefore, the bank instrument is deemed useless for its intended purpose.
The Purpose of Bank Instruments
SBLC that are issued to monetize or for the purpose of securing credit lines tend to be precisely worded and include specific terminology. Some SBLC’s may not be intended for monetization. It is essential to fully understand the terms and conditions of your purchase to make sure it works for you.
The truth is, just because you have the money to purchase a bank instrument does not automatically mean your SBLC will be monetized. There are a few service providers that specialize in Monetizing Bank Instruments.
It is crucial to remember that all ‘components’ must be present if a bank instrument is issued for project financing. To put it another way, the SBLC Provider and Bank Issuer, Monetiser, and Trader must all be in sync to ensure that funds are raised for project funding.
It is best to know who will be using your bank instrument before buying it. If you use the services of a broker to purchase an agent, this may not be possible. Brokers will often ask for a copy and pass it on to their Provider to verify that it is possible to monetize. It is essential to understand that all SBLCs are not the same.
Bank Instrument Issuance & Bank Rating
Next, consider where the Standby Letter Of Credit came from. This will impact not only the ability of the instrument to be monetized but also how much LTV (loan-to-value) you can expect to receive. Instruments from the United Kingdom, for example, would have a higher credit rating than instruments from Argentina. You should be aware of the differences between the legal jurisdictions and their ramifications. This will affect the cost of the bank instrument and its acceptability to third-party Monetizing.
Bank Instrument Language
Ask for a copy of the DOA. This should include a sample of SWIFT MT760 (the actual SBLC). Before you pay for it, make sure to read every word. You should verify that the bank instrument can be monetized and, if possible, find a service provider that will do so in advance. It will be more work up front, but it will pay off over the long term. When reading the text, there are two words that you should be looking for: “Cash backed” and “Cash secured.” A bank instrument that isn’t Cash backed will be inaccessible to most monetizes.
Purchase An SBLC To Get A Line Of Credit
It will help your bank to establish a credit line if they can see the text in advance. It may not suffice to show someone the SBLC text in order to develop a credit card line. While the text will be the first thing that a Monetiser will examine, it is not the only thing we will take into consideration.
Things to Consider When Monetizing Bank Instruments
There are many things to consider. A solid business plan and strong relationships are essential when you use a bank instrument for funding a project. Also, you need to have a project and a professionally written business plan.
This would not be considered a business plan if your entire business plan consisted of getting the Standby Letter Of Credit, sending emails to companies that monetize bank instruments, and hoping to find someone to lend you cash.
Additional supporting documentation
A solid business plan, including one that is energy-related and a bank guarantee to get credit lines, would be a boon for the bank.
It is essential to have all paperwork in order and have a way to make money on your investment or project. These are what credit providers look for. If you want to borrow against a bank instrument, the bank must be able to believe in your project. An SBLC can be purchased by anyone, but only those who do the research and work hard will have the best chance of getting the instrument monetized.
Your Own Credit Line
Suppose you’re considering having a Third Party Block millions of dollars setting up a credit card line for you, backed by a Bank Instrument. Be prepared to listen to and follow the instructions of the credit provider. They are helping you and not the opposite. The investor is the one you are proposing, not you. The project sponsor may believe that their project is the most important and should be honored. This is not how it works.
It is a good idea to follow the guidelines and procedures of your credit line provider. Service providers will need to be able to choose who they work with, given the current lack of liquidity in the banking industry. Many service providers have been forced to abandon transactions because clients are difficult or uncooperative.
Be prepared to submit a full Corporate Information Sheet (or Biography/Application) on your company and its officers, along with a complete business plan. If you are monetizing an instrument, please be prepared to provide the text of your SBLC. Be clear about how and why you want to monetize the tool.
Your Exit Strategy Plan
Describe how you plan on exiting this strategy and how the instrument will be returned at the end. In the case of monetizing tools, it will be the monetize who is responsible for returning the agency at the end of the term. To monetize the instrument, you will basically be assigning it to the monetize. In many cases, you will need to provide Proof of Funds (bank statements and not blocked funds). You should follow all instructions to get your line of credit opened and/or your SBLC monetized.