Collateral Transfer is the technical term for what is incorrectly referred to as a Leased Bank Guarantee. Collateral Transfer, is the provision of assets from one party, (The Provider), to another party, (The Beneficiary), often in the form of a Demand Bank Guarantee. The two parties enter into and sign a contract, The Collateral Transfer Agreement, which is accordingly undergoes due diligence by the Providers bank, (The Issuing Bank), and the Beneficiary’s bank, (The Receiving Bank),
Once the two banks have agreed the viability of the contract, the Beneficiary will pay the Provider an agreed sum for the temporary use of the Bank Guarantee, (usually one year), this is referred to as the Contract Fee. The Issuing Bank transfers the Bank Guarantee by a designated Swift MT 760. All international banks are on the swift system, which stands for, “Society for Worldwide Interbank Financial Telecommunications” and MT 760, belongs to the swift message type utilised for sending Bank Guarantee’s and Letters of Credit.
The underlying agreement which is the Collateral Transfer Agreement, has no bearing or impact on the usage of the Bank Guarantee or the wording contained therein, thus allowing the Beneficiary to use the Bank Guarantee, for the agreed period, for their own purposes, usually to secure a loan or a line of credit, also referred to as Credit Guarantee Facilities. At the end of the term or period, the ownership of the Bank Guarantee reverts to the Provider.
The Collateral Transfer Facility, as offered by IntaCapital Swiss, is now available to smaller companies due to more competitive pricing by the asset providers, usually Hedge Funds, Sovereign Wealth Funds, and the bigger Family Office, thus making loans and lines of credit more available across the spectrum of companies.
Where a borrower has very little security to apply for credit from their bank, Collateral Transfer allows the borrower or Beneficiary to effectively, temporarily import a Bank Guarantee for use as collateral to access Credit Guarantee Facilities. Loans and lines of credit therefore become available to companies who were experiencing difficulties in accessing credit facilities.