When it comes to finance, SBLC and BG are the unsung heroes. They are present there all the time, and you can get money out of these documents whenever there is a need. These documents are not just papers, but they have huge potential whether you want to access capital to grow your business, to run ambitious projects, or to secure a lifeline of business. Luckily, you have the opportunity to monetize these instruments to get immediate cash flow. But the question is, what is the difference between the two documents?
Know more about BG SBLC monetization!
- BG monetization
A bank guarantee is a non-contingent financial instrument that makes it payable on demand without meeting any specific condition. Check how it works:
- Due diligence
The BG monetizer verifies the legitimacy of the BG along with its terms and conditions.
- Assignment or collateralization
Then the BG is assigned to the BG monetize or serves as collateral.
- Verification
Then the issuing bank authenticates the BG, which is generally done using a SWIFT message.
- Agreement of BG monetization
In this step, the terms are being outlined, including fees and payout percentages, which are generally 70 to 90% of the face value of the BG.
- Disbursement of funds
Now, funds are wired to your account once everything has been checked.
Conversely, standby letters of credit are contingent instruments, which means they require some specific conditions to be met, which makes the process of SBLC monetization a little complex compared to BG monetization.
- Submission
Firstly, the SBLC owner submits the instrument along with the supporting documents to the SBLC monetiser.
- Verification
The issuing bank confirms the authenticity of the SBLC and various terms via SWIFT MT760.
- Assessment
This step evaluates the monetizing entity for callable conditions and overall viability.
- Monetization agreement
In this step, negotiation has been done with a payout that lies between 60 to 85% of the face value of the SBLC. This is due to the contingent nature of the document.
- Disbursement of funds
Once verification has been completed, then funds are released to get immediate cash flow or liquidity.
Now, let’s talk about the difference between the two!
- Purpose
BG is a document that guarantees payment if conditions are met. Conversely, SBLC serves as a safety net during non-performance time as well.
- Type of document
BG is non contingent, which means it is payable on demand, while SBLC is contingent, which requires specific triggers.
- Risk profile
BG is a lower risk and more straightforward to use, and can be used in multiple cases. On the other hand, SBLC has a slightly higher risk due to the specific conditions applied.
- Value of monetization
BG generally comes with a high value, which is around 70 to 90% of the face value. On the other hand, SBLC comes with a lower value, which is around 60 to 85% of the face value of SBLC.
- Use cases of both
Generally, BG is used for project funding and to finance trade. SBLC is generally used for credit enhancement, while security credit lines are used.
Conclusion
Both BG SBLC monetization is a great way to access liquidity. Now you know the difference between the both making it easier for you to make a decision. BG is a suitable option for faster and straightforward monetization, while SBLC provides a robust safety net for high stake deals.
