Sblcdiscounting

 

You could be asking what the advantages are for leasing a bank instrument or considering other choices than risking your own personal collateral to secure a distinct credit?

 

The Advantages of Leasing an SBLC:

 

It's very good for trade finance

It's a good to give the Seller comfort if the Buyer not pay for goods received

It's a great way for a Purchaser to purchase goods to offer onto a Buyer waiting in the wings and use proceeds from sale to pay for the products purchased from the Seller.

How Does Leasing An SBLC Work?

 

Let's say you are a factory turning soy beans into soya milk. You've an order from the neighborhood supermarket worth $150M, you wish to buy $100M worth of soy beans from a Supplier, in your bank-account you have $250M.

You may well be concerned that with other outgoing costs, this order could leave you hardly any money for other expenses. In place of taking out the entire $100M from your own bank-account to put on as collateral to get a loan to purchase the soy beans, you might choose another (safer) option.

You may raise a bank instrument to show your Supplier that you have the financial means ready to purchase the soy beans from them. This Bank instruments providers can come from a Third Party Provider who will let you lease their collateral at say 10% of the cost so now you are only spending $10M in place of risking $100M. By leasing a bank instrument means you are a temporary lessee for one year and one day.

Normally invoices are issued on a 45, 60 or 90 day invoicing cycle. So theoretically you can choose the soy beans from the Supplier by taking out a bank instrument. This may then be assigned to the Supplier as backup in case you default on settling the invoice - this is very common in trade finance.

In trade finance the Supplier will want assurances by means of a bank instrument to demonstrate that will an invoice not be settled, they are able to call on the instrument and cash it in to collect their payment. If this is timed correctly, the Purchaser of the soy bean can receive the products, convert it into soya milk to offer onto the supermarket who consequently pays the $150M which includes been pre-agreed and the Supplier financial instruments bg sblc can consequently settle the $100M (the cost of the soy beans from the Supplier) within the stipulated timelines and only risk hardly any of their particular money.

 

Example Of Leasing An SBLC:

 

Supplier sells the soy beans for $100M

Purchaser leases a bank instrument at 10% of face value of the instrument. Therefore the cost to lease in this instance is $100M x 10% = $10M

Purchaser puts up the instrument as a 'promise to pay' if the purchaser default on payment of the $100M invoice and supplier proceeds to produce the soy beans

Purchaser takes shipment of goods and processes the soy beans into soy milk

Purchaser then sells the soy milk immediately to the supermarket for $150M

The supermarket settles the $150M invoice immediately

Purchaser then takes the $150M and settles the $100M right away and makes a $40M profit ($150M less $100M less $10M for the cost of leasing the instrument) without having to provide the entire $100M upfront. The entire transaction essentially cost them $10M and they managed to produce $40M in the process

Buying An SBLC

 

If you're looking to purchase an SBLC there are some advantages and disadvantages to be aware of. The main benefit of Buying a StandBy Letter Of Credit is that you become the official owner of the instrument and consequently you would manage to lease the bank instrument out to a Third Party. Considerations must be made as the price tag on the bank instrument won't be cheap as the cost to purchase would start at around 30% plus of face value. So if you wish to purchase a StandBy Letter of Credit for $100M, the purchase price to purchase would start around $30M therefore you will have to weigh up the benefits of purchasing v's leasing a bank instrument.

SBLC Providers can be very hard ahead by. Many do not advertise their services and obtaining a bank instrument through the bank can be very frustrating for the amount of paper work that needs to be done. Finding financial solutions will help your business move forward. Using innovative ways of structuring finance can result in flexible solutions for company expansion.