Do you need a bank guarantee (bg) for trade finance? Are you a contractor that needs bank guarantee or standby letter of credit to secure contracts or are you an importer in need of a bg, lc letters of credit for your import and export transactions? Then this article is right for you.
Kingrise Finance Limited is a standby letters of credit provider, lease bg sblc provider, bank guarantees provider, import letters of credit provider, standby lc providers, sblc provider and international bank guarantee providers.
Bank guarantees play a vital role in international trade and other business transactions. They are used in almost every phase of the transaction between the buyer and the seller.
Bank guarantees will enable you to secure loans from banks as well as for trade financing, project finance, import and export transactions.
Some situations require that a third party (often a bank) guarantees to pay a sum of money to one party if the counterparty defaults, for example if the counterparty fails to deliver a project within the agreed time lines. As such, the guarantee transfers the creditworthiness of the applicant/instructing party of the guarantee to the bank (the guarantor).
It is important to understand that what the guarantor guarantees is to pay an amount of money to the beneficiary, not to complete the project, fix the machine, deliver the goods or whatever else may be the subject of the guarantee. In fact, the guarantor does not guarantee that the applicant/instructing party will fulfill its obligation.
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As a business owner or as an importer and exporter of goods and services, there will come a time when you cannot do without a bank guarantee to enable you to close those important deals, secure contracts or even get a loan from your bank. Also, you can buy goods from another country or another unknown party with the help of a bank guarantee.
Apart from importers and exporters, contractors can as well use a bank guarantee to secure their contracts.
Definition and purpose of a bank guarantee
A bank guarantee is an independent, documentary undertaking by which a bank (or other legally qualified entity) (the guarantor), issues, at the request of its customer (the instructing party), its irrevocable guarantee to pay a sum of money to a third party, (the beneficiary), provided a complying demand/document(s) is presented. This definition contains some of the core principles concerning these kinds of guarantees.
A bank guarantee is an independent undertaking by a bank (hereafter called “guarantor”). This undertaking means that the guarantor becomes obligated to pay an amount, specified in the guarantee, provided the terms of its guarantee are complied with.
A bank guarantee is irrevocable, meaning that once issued it cannot be amended nor cancelled during the validity period without the consent of the parties, i.e. the guarantor and the beneficiary.
Types of Bank Guarantees
Bank guarantees are just like any other kind of financial instrument—they can take on a variety of different forms. For instance, direct guarantees are issued by banks in both domestic and foreign business. Indirect guarantees are commonly issued when the subject of the guarantee is a government agency or another public entity.
The most common kinds of bank guarantees include:
- Shipping guarantees: This kind of guarantee is given to the carrier for a shipment that arrives before any documents are received.
- Loan guarantees: An institution that issues a loan guarantee pledges to take on the financial obligation if the borrower defaults.
- Advanced payment guarantees: This guarantee acts to back up a contract’s performance. Basically, this guarantee is a form of collateral to reimburse advance payment should the seller not supply the goods specified in the contract.
- Confirmed payment guarantees: With this irrevocable obligation, a specific amount is paid by the bank to a beneficiary on behalf of the client by a certain date.
Step by step process/procedure on how to process a BG/SBLC from a financial institution like Kingrise Finance Limited in 2020.
Step 1: Application is made to KINGRISE FINANCE LIMITED for opening of a Bank Guarantee (BG) or Standby Letter of Credit (SBLC) including but not limited to the following:
1. Filled and signed BG SBLC application form. (Provided by KINGRISE FINANCE LIMITED upon request)
2. Desired verbiage of BG/SBLC. (If none provided, KINGRISE FINANCE LIMITED will provide its normal BG/SBLC / letter of credit verbiage.
3. SWIFT code and address of beneficiary bank.
4. Know Your Customer (KYC) documents including but not limited to: Passport copy of applicant, proof of address documents such as electricity or water bill, articles of incorporation of applicant company and brief summary, executive summary and/or business plan of underlying transaction.
Step 2: KINGRISE FINANCE LIMITED reviews all documents presented and evaluates acceptability of documents. KINGRISE FINANCE LIMITED then either approves application or denies and shall inform the applicant of such decision.
Step 3: KINGRISE FINANCE LIMITED prepares draft of the BG/SBLC as it is comfortable to issue and forwards to client for approval. All drafts shall be in line with rules and regulations governing the issuance of BG/SBLC.
Step 4: The client approves the draft and:
1. Signs a contract agreeing to the terms and conditions of issuance and issuance charges as negotiated.
2. KINGRISE FINANCE LIMITED issues the invoice for the agreed upon charges.
Step 5: Client makes payment of charges as per agreed upon payment structure.
1. Client shall provide TT/Wire copy of payment made to KINGRISE FINANCE LIMITED account.
2. KINGRISE FINANCE LIMITED shall confirm to client credit of funds upon receipt of funds to KINGRISE FINANCE LIMITED account.
Step 6: KINGRISE FINANCE LIMITED uploads draft to SWIFT system and provides copy to applicant for final approval of message. Upon approval given by applicant KINGRISE FINANCE LIMITED then releases the SWIFT to beneficiary bank coordinates.
Step 7: Copies of released SWIFT MT799 and Swift MT760 are then forwarded to the client via email or hard copy as requested. In case the client is represented by an advisor, then it is forwarded to the advisor only.
Step 8: Any amendments to BG/SBLC are subject to approval of KINGRISE FINANCE LIMITED.
If you need further information about Standby Letter of Credit (SBLC), Bank Guarantee (BG) or any other financial instrument kindly contact Kingrise Finance Limited For More Information and Assistance.