Simply put, a Bank Guarantee is a commitment by a bank or the issuing party to pay a set amount of money to a nominated beneficiary, as compensation, in the event of a default by the client.
Where are BG’s used for?
Construction and development, expanding companies, trading platforms and the establishment of trading facilities.
What is needed to assess?
Each product has a different requirement but typical documents are : Business plan, feasibility study, CV’s, cash flows, budgets, QS reports, exit strategy, funds already invested, property valuations, asset valuations and clients personal and company balance sheets, proof of funds to pay admin fee and BG costs. Full lists for each different type of BG are available from us.
Some features of BG’s :
• Can be used to enhance your ability to secure a credit facility, especially if it is 100 % cash-backed (Cash backed is when someone has blocked funds in their account, to allow issue of the BG).
• Can be used as added security / collateral for a loan
• Can be issued for 3 months to up to 5 years
• Certain BG’s can be monetised. You need to verify this prior to issue. Your bank may charge a fee to “monetise” the Bank Guarantee.
• Fees cannot be paid from the trade profits. The instrument fees are always payable when the instrument is issued. Costs and rates vary BUT in many cases this is cheaper than other forms of credit and the big advantage of this instrument, is that if you have a credible trade proposal, you can access a large trade facility with a fee which is relatively small in relation to the trade benefit to you.
Securing a Trading Facility Using a Bank Guarantee
Our Bank Guarantee associates are able to set up a facility on your behalf, out of which you may issue financial instruments (Letters of Credit) to your suppliers as and when required. The facility will be with your local bank. To set up this facility a full feasibility proposal needs to be sent to the relevant bank. Our associates are able to provide these types of facilities and instruments, as they have suppliers of BG’s in Europe, who will avail securities to the local bank in order for a trade facility to be structured, on your behalf.
This is all credible, as local attorneys draw up an agreement confirming what the service providers duties and responsibilities are in setting the facility set up for you. Only once the service level agreement is agreed to by you and signed will the work commence.
Once the facility is set up, you will be in a position to issue Guarantees, Standby Letters of Credit and Letters of Credit to your suppliers, which provides them with the payment undertakings and security they need to trade with you. Please bear in mind that these financial instruments will be issued out of your facility at a local or international bank.
The following is required in order to commence with the establishment of a trade facility : An administration fee of ZAR 35 000 in order to commence negotiations with our providers, to pay them to block certain instruments and to arrange the agreement from the appointed attorney on the undertakings with respect to establishment of a trading facility for you.
A presentation fee of ZAR 200 000 to be lodged in a nominated attorneys trust account (yours or ours), for purposes of producing a feasibility study, business plan and to do the presentations to the banks to secure a trade facility. The agreement mentioned above, governs the process, milestones, deliverables and the responsibilities, to you.
