Using bank instruments is one of the most common things in today’s time. A lot of companies use these various instruments to make various arrangements and financial improvements in their business. There are plenty of instruments available for anyone to monetize or lease such as – SBLC, bank guarantee, Letter of Credits and many more.
However, there are a few unknown facts about these banking instruments and leasing these instruments involves the temporary assignment of an instrument for an agreed upon fee between the instrument owner and prospective borrower. This is similar to the idea of “proof of funds”, which has been around for years. To summarize, if the owner assigns the funds to a temporary beneficiary, that beneficiary may be able to show these funds for future transactions which require proof of sufficient capital. The problem with this isn’t so much the leasing of the assets, but rather the leasing of the bank instrument.
However, there are a few rarely known facts about these instruments you must know. They are –
1. Leased instruments are rarely used – When it comes to private placement programs, leased bank instruments are rarely used. So when you lease a bank instrument, first you won’t be able to use it in private placement programs and then again, the bank will not allow you to block the instrument in other person’s favor. Because the instrument has been leased and it is already encumbered by the REAL owner when it was leased to you.
2. It is quite rare to get a loan out of a leased bank instrument as you don’t own it – The bank will not really give you a loan for your leased bank instrument because you don’t own it. If the collateral is owned by another individual who has not signed off on the loan contract, the bank can’t seize that person’s collateral, and therefore, the bank would not loan to anyone but the real owner of the asset. In short, your only option for a loan against a leased bank instrument would be from a private lender.
3. Bank Instrument Leasing Contracts only Protect the Provider and Brokers – The leased bank instruments don’t have any guarantee or protection provided by the broker and the providers. This allows them to block an instrument in your favor with restrictions, and if you can’t use it for anything, it’s your loss. Even though they may have to “deliver” the instrument via SWIFT before the money is released from Escrow, there is no guarantee that this instrument will be delivered properly, or that it will still be applicable to the opportunity you were using it for.