Why are funding instrument providers so hard to find?
Issuing BGs and SBLCs requires a specialized financial skill set, and as such, genuine providers are few and far between.
High net-worth clients and business owners often need more expertise and time to navigate the issuing process, making a genuine provider’s expertise even more valuable. However, as providers are selective with whom they do business, working with a reputable provider is vital.
Unfortunately, many clients need to be made aware of the upfront fees associated with BGs and SBLCs and often fall prey to monetizers who fail to perform as per transaction procedures.
What is the purchase of a bank instrument such as BG or SBLC?
The purchase of a bank instrument, such as a BG or SBLC, allows the buyer to cash the instrument at its full-face value at the end of the year. When a buyer purchases a bank instrument from a provider, they gain access to its financial benefits.
How can a provider sell an SBLC or BG for 50% of its face value?
When a provider sells a bank instrument, it is because they have a financial strategy that is well thought out via different trading programs or platforms that, with the cash received from the sale of the bank instrument, they can reinvest the cash for the full year in the commodity market and will, in turn, pay for the bank instrument itself. During this process, they will also make money.
For example, let’s say you purchase a BG or SBLC from AltFunds Global with a $100 million face value to be cashed in one year, and one day, you will pay $50 million to the company in cash. The company will deliver to you the purchased owned BG or SBLC. At the end of the year (1 year and 1 day), you will double your money 100%, guaranteed by the bank instrument. However, in the meantime, once the funds are received from the buyer on day one, AltFunds Global will place that $50 million into the trade market generating at least 10% (more or less) of profit each time they invest the funds.
AltFunds Global will get into a partnership agreement (PA)with a trading platform that has, for example, a pre-arrangement with a “Salt Wit” to deliver one container of salt per week for the entire year, and each container will give them 10% of the profit. Each year has 52 weeks, meaning that when you take that 10% and multiply it by the 52 weeks that a year has, the total profit (TP) will be 520% ($260,000,000 million) of the funds received by the buyer, giving AltFunds Global enough funds to pay 100% of the face value of the bank instrument sold to the client and much profit left over to split between them and the trading platform (PA).
What part do banks play in BG / SBLC transactions?
The bank is not the initiator but the deliverer of the transaction. This means that the bank is the deliverer, not the initiator of the transaction – they confirm that their client has sufficient funds. The bank is the delivery courier who works for the BG and SBLC provider, the actual asset owner, asset holder, or asset manager.
For example, let’s pretend you use a courier to deliver a parcel to a customer. You are the parcel provider, and the courier is the delivery agent who delivers your parcel to the receiver. The courier isn’t the provider of the parcel. They are just the delivery agent the provider uses to send the parcel from the provider’s location to the receiver’s.
Using the illustration above, banks treat Bank Guarantees and Standby Letters of Credit similarly. The bank serves as the courier and receives a financial order from a supplier to send to the receiver’s bank one of the providers’ assets (BG or SBLC). In other words, the banks are becoming the most widely known MT messages as the sender and recipient of SWIFT messages instead of the courier. (If it’s MT760, MT799, and so on).
Apart from receiving fees for “cutting” (initiating) and “delivering” the bank instrument, the bank holds no interest in the transaction. As the financial instrument was launched and secured since then against the cash position in the provider’s bank account at the issuing bank, all other responsibility for the asset is theirs.