What is a “Leased” Bank Guarantee and How is it Linked to Collateral Transfer?

This is an interesting question. The term “Leased” Bank Guarantee has been around for decades. But this term is technically incorrect. The actual technical term is Collateral Transfer or C/T Facility. I know this may come as a surprise to many but it is true. 

Financial historians suggest that the term “Leased” was plagiarised from a commercial leasing contract. The original Collateral Transfer contract is very similar to that of a commercial leasing contract. Hence the term “Leased” Bank Guarantee. 

As advised above the term “Leased” Bank Guarantee has been with us for many years. This term will not be found in any official financial lexicons. However, it is embedded in financial terminology and is here to stay. 

What is a “Leased” Bank Guarantee?

A “Leased” Bank Guarantee is a financial instrument issued by a bank under instructions from their client. This client, (in the world of “Leased” Bank Guarantees) is referred to as the Provider. A company looking to raise funds will “lease” a Bank Guarantee. This company is referred to as the Beneficiary. The Provider and the Beneficiary will enter into a contract referred to as a Collateral Transfer Agreement. For more indepth information, please see here.

What is a Collateral Transfer Agreement? 

This is a contract between the Provider and the Beneficiary. The Provider agrees to lease the Bank Guarantee to the Beneficiary for an agreed period. This period is usually for one year. Upon expiry of contract the Bank Guarantee ownership reverts to the Provider. The Beneficiary will pay a leasing fee to the Provider. This fee is known as the Collateral Transfer Fee. 

What is the Purpose of a Leased Bank Guarantee? 

In todays world many companies are refused credit facilities by their own banks. So, they utilise “Leased” Bank Guarantees to raise much needed finance. There is a specific Bank Guarantee that is used for monetisation purposes. This guarantee is a Demand Bank Guarantee. 

A Demand Bank Guarantee is the only Bank Guarantee that can be monetised. This instrument contains precise verbiage that allows for monetisation. It is governed by ICC Uniform Rules for Demand Guarantees, (URDG 758). It is payable on first demand. 

How is a “Leased” Bank Guarantee Monetised? 

Once the Collateral Transfer Agreement is signed the Provider instructs their bank to transmit the Bank Guarantee to the Beneficiary’s account. Once received the Beneficiary can approach their bank for a loan or line of credit. The “Leased” Demand Bank Guarantee is offered up as security. 

How Does a Company Access a Leased Bank Guarantee? 

IntaCapital Swiss is a boutique finance company based in Geneva. For over a decade they have been providing access to “Leased” Bank Guarantees. They have been working hand in hand with Providers for many years. Their data base of Providers is extremely impressive. 

Companies seeking access to “Leased” Bank Guarantees can use the highly popular Collateral Transfer Facility. This allows the companies to receive a Bank Guarantee on their account. They can then as advised above, offer the Bank Guarantee to their bank as collateral for a loan or line of credit. 

IntaCapital Swiss are Europe’s leading experts on Collateral Transfer and “Leased” Bank Guarantees.