SBLC - LC - BG - Proof of Funds

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In the rapidly developing trade environment a trade finance provider and or broker with the knowledge of local business customs and rules combined with a global reach is vital.

Merchant Credit and Guarantee Corporation Limited (MCGCL) is the culmination of several senior banking professionals with over 150 years collective experience in banking and finance and more so trade credit services. At MCGCL we make it a point to know our client requirements in complete detail so that we can provide the right guidance and advice to help them attain their goals. Our dynamism and adaptability to suit local and client specific needs, is a major advantage enabling clients achieve their objectives in an efficient, timely and cost effective manner. MCGCL has been operating as a Non-bank financial company since 2000 and has recently been restructured financially to undertake large exposures in the business of trade credits.

We combine our knowledge base with opinions and guidance from local trade experts in the major trading centres of the world to ensure that our clients transactions are effortlessly and effectively managed providing the clients the best possible opportunities to grow.

WHAT WE DO

MCGCL is a Financial Company offering specialised services including but not limited to trade finance, international project financing and swift financial messaging to a global network of clients spanning across the world. MCGCL is able to quickly understand its client's needs and use its long standing reputation, credibility, and financial strength to underwrite or broker solutions for its clients from organizations globally. Put simply it is able to deliver for the client.

HOW WE DO IT

MCGCL handle transactions which require for using appropriate Financial Instruments such as - Standby Letters of Credit (SBLCs)/ Bank Guarantees (BG's), Letters of Credit (LCs), Proofs of Fund (POFs), Fund Transfer Instruments etc. These are issued or brokered for discerning clients that may have the use for such instruments for their needs. These Instruments are issued by Banks and Financial Institutions globally and MCGCL uses its balance sheet and contacts to confirm and stand as a guarantor in the middle to make these transactions come to fruition. These are a demonstration to the receiver/seller that the issuer/buyer has the capacity to pay for the transaction/ deal/goods, which is usually done at the time of the issuer/buyer's obligation to pay/on the respective dates of payment commitments/ receipt of goods, etc. There is no doubt that while this sounds easy, this is done with a detailed due diligence by MCGCL on all sides and also by the providing Institutions which are namely banks and financial institutions globally.

 

What we offer:

 

Standby Letters of Credit

DEFINITION of 'Standby Letter of Credit - SBLC

A guarantee of payment issued by a bank on behalf of a client that is used as "payment of last resort" should the client fail to fulfil a contractual commitment with a third party. Standby letters of credit are created as a sign of good faith in business transactions, and are proof of a buyer's credit quality and repayment abilities. The bank issuing the SLOC will perform brief underwriting duties to ensure the credit quality of the party seeking the letter of credit, then send notification to the bank of the party requesting the letter of credit (typically a seller or creditor).

Also known as a "non-performing letter of credit".

 

A standby letter of credit will typically be in force for about one year, allowing for enough time for payment to be made through standard contractual guidelines. Standby letters of credit are often used in international trade transactions, such as the purchase of goods from another country. The seller will ask for a standby letter of credit, which can be cashed on demand if the buyer fails to make payment by the date specified in the contract. The cost to obtain a standby letter of credit is typically 4-15% of the face amount annually, but the letter can be canceled as soon as the terms of the contract have been met by the purchaser or borrower.

A Standby Letter of Credit or Guarantee is a written undertaking given by MCGCL to the person with whom you are doing business (beneficiary) to pay a specified amount of money in the event that you or a third party do not meet specific financial or performance obligations. Upon MCGCL's payment to the beneficiary, you reimburse MCGCL for such payment.

Different types of Standby Letters of Credit or Guarantees offered by MCGCL

• Bid Guarantees (Bid Bond)
• Performance Guarantees (Performance Bond)
• Advance Payment Guarantees
• Retention Guarantees or Advance Payment Holdback Under Contract Guarantees
• Financial Guarantees

Key benefits

Improves your cash flow

• Eliminates or reduces the need to give a beneficiary, with whom you have entered into a contract, cash collateral or other security to support the performance obligations under the contract
• May eliminate the need for you to prepay for products or services, which allows you to use your funds for alternate purposes before payments become due
• A bid or performance guarantee may help you win contracts by providing the company with financial security of payment

Convenient

• MCGCL has expertise in structuring Standby Letters of Credit or Guarantees to meet your business needs while helping to protect your interests to the extent possible in the circumstances
• MCGCL has developed numerous Standby Letter of Credit or Guarantee proformas to meet a variety of scenarios; we can customize any of our formats to suit your needs, subject to certain requirements

Access to trade finance expertise

• Our trade finance experts provide you with structuring, mitigation and financing expertise and up-to-date country and trade risk guidance to support and expedite your trade transactions

What is a standby letter of credit?

A Standby Letter of Credit (called“SLC or “LC”) are written obligations of an issuing bank to pay a sum of money to a beneficiary on behalf of their customer in the event that the customer does not pay the beneficiary. It is important to note that standby letters of credit apply only whenever the issuing bank's commitment to pay is not contingent on the existence, validity and enforceability of its customer’s obligation; this is called an “abstract” guarantee; that is, the bank’s obligation is to pay regardless of any disputes between its customer and the beneficiary. The issuance of letters of credit is a private transaction and does not result in the issuance of any public trading securities.

 

Why do we have standby letters of credit?

The standby letter of credit comes from the banking legislation of the United States, which forbids US credit institutions from assuming guarantee obligations of third parties. (Most other countries outside of the USA continue to allow bank guarantees.) To circumvent this US banking rule, the US banks created the standby letter of credit, which is based on the uniform customs and practice for documentary credits. In 1998 the International Chamber of Commerce (ICC) added ISP98 (International Standby Practices 98) as the rules to guide standby letters of credit. These rules are slowly being adopted; however, many of the standby letters of credit continue to rely on the ICC’s older guide, Uniform Customs and Practices for Documentary Credits, 1993 revision, ICC Publication 500.

 

Who are the parties to the standby letter of credit?

• The Applicant. This is the customer of the bank who applies to the bank for the standby letter of credit. He must provide collateral to the bank or have sufficient credit to induce the bank to issue the instrument. He also must pay the bank a fee for issuing the instrument.
• The Issuing Bank. This is the applicant’s bank that issues the standby letter of credit.
• The Beneficiary. This is the party in whose favour the instrument is issued.
• Confirming Bank. This is a bank (usually located near the beneficiary) that agrees (confirms) to pay the beneficiary rather than have the issuing bank pay the beneficiary. The beneficiary pays the Confirming Bank a fee for this convenience. The Confirming Bank then collects from the Issuing Bank the amount paid to the beneficiary.
• Advising Bank. This is the bank that represents the beneficiary. It may accept the letter of credit on behalf of the beneficiary and collect on it on behalf of the beneficiary. In order for the transaction to be a bank-to-bank transaction, the advising bank works for the beneficiary to keep the instrument in the banking system. Sometimes the Advising Bank also is the Confirming Bank, but not always.

What is the purpose of the standby letter of credit?

The standby basically fulfils the same purpose as a bank guarantee: it is payable upon first demand and without objections or defences on the basis of the underlying transaction between the applicant and the beneficiary. It is up to the beneficiary to decide whether he may accept a standby.

 

What are the types of standby letters of credit?

• Performance Standby. This instrument supports an obligation to perform other than to pay money including the purpose of covering losses arising from a default of the applicant in completion of the underlying transaction.
• Advance Payment Standby. This instrument supports an obligation to account for an advance payment made by the beneficiary to the applicant.
• Bid Bond/Tender Standby. This standby supports an obligation of the applicant to execute a contract if the applicant is awarded a bid.
• Counter Standby. This instrument supports the issuance of a separate standby or other undertaking by the beneficiary of the counter standby.
• Direct Pay Standby. This instrument serves to support payment when due of an underlying payment obligation typically in connection with a financial standby without regard to default. This standby is also used to directly pay an obligation where the only conditions of payment are the passage of the term and presentment of payment.
• Insurance Standby. This instrument is an insurance or reinsurance obligation of the applicant.
• Commercial Standby. This is the most used standby and it supports the obligations of an applicant to pay for goods or services in the event of non-payment by a business debtor.

Are standby letter of credits transferable?

Assignment of Standby letter of credit proceeds -The beneficiary can assign the proceeds of a standby letter of credit. But this assignment does not assign the rights of the beneficiary as “drawer” on the standby letter of credit, and only the beneficiary may exercise the “drawer” rights and present the demand for payment under the terms of the standby letter of credit unless the terms of the instrument provide otherwise. This means that the assignee may receive the proceeds of the standby, but in order to obtain those proceeds the beneficiary must first make the demand for payment. This also means that the beneficiary can sell by assignment, at discount, the benefits of the standby. An assignment of proceeds requires notice to the issuing bank of this action; otherwise the issuing bank would pay the beneficiary rather than the assignee.

 

Transfer of Standby letter of credits. Standby letter of credits can be transferred to a third party ONLY with the written consent of the issuing bank AND the beneficiary. Are standby letter of credits the subject of trading?

There is no public market for the trading of standby letters of credits. Standby letters of credits can only be transferred or the proceeds assigned in private transactions (as previously noted above).

 

Standby letters of credit do not have CUSIP or ISIN numbering. Standby letters of credits are not trading securities, trading debt instruments, or trading investment funds, and therefore are not subject to the rules and regulations of the Security and Exchange Commission.

 

Standby Letters of Credit

DEFINITION of 'Standby Letter of Credit - SBLC

A guarantee of payment issued by a bank on behalf of a client that is used as "payment of last resort" should the client fail to fulfil a contractual commitment with a third party. Standby letters of credit are created as a sign of good faith in business transactions, and are proof of a buyer's credit quality and repayment abilities. The bank issuing the SLOC will perform brief underwriting duties to ensure the credit quality of the party seeking the letter of credit, then send notification to the bank of the party requesting the letter of credit (typically a seller or creditor).

Also known as a "non-performing letter of credit".

 

A standby letter of credit will typically be in force for about one year, allowing for enough time for payment to be made through standard contractual guidelines. Standby letters of credit are often used in international trade transactions, such as the purchase of goods from another country. The seller will ask for a standby letter of credit, which can be cashed on demand if the buyer fails to make payment by the date specified in the contract. The cost to obtain a standby letter of credit is typically 4-15% of the face amount annually, but the letter can be canceled as soon as the terms of the contract have been met by the purchaser or borrower.

A Standby Letter of Credit or Guarantee is a written undertaking given by MCGCL to the person with whom you are doing business (beneficiary) to pay a specified amount of money in the event that you or a third party do not meet specific financial or performance obligations. Upon MCGCL's payment to the beneficiary, you reimburse MCGCL for such payment.

Different types of Standby Letters of Credit or Guarantees offered by MCGCL

• Bid Guarantees (Bid Bond)
• Performance Guarantees (Performance Bond)
• Advance Payment Guarantees
• Retention Guarantees or Advance Payment Holdback Under Contract Guarantees
• Financial Guarantees

Key benefits

Improves your cash flow

• Eliminates or reduces the need to give a beneficiary, with whom you have entered into a contract, cash collateral or other security to support the performance obligations under the contract
• May eliminate the need for you to prepay for products or services, which allows you to use your funds for alternate purposes before payments become due
• A bid or performance guarantee may help you win contracts by providing the company with financial security of payment

Convenient

• MCGCL has expertise in structuring Standby Letters of Credit or Guarantees to meet your business needs while helping to protect your interests to the extent possible in the circumstances
• MCGCL has developed numerous Standby Letter of Credit or Guarantee proformas to meet a variety of scenarios; we can customize any of our formats to suit your needs, subject to certain requirements

Access to trade finance expertise

• Our trade finance experts provide you with structuring, mitigation and financing expertise and up-to-date country and trade risk guidance to support and expedite your trade transactions

What is a standby letter of credit?

A Standby Letter of Credit (called“SLC or “LC”) are written obligations of an issuing bank to pay a sum of money to a beneficiary on behalf of their customer in the event that the customer does not pay the beneficiary. It is important to note that standby letters of credit apply only whenever the issuing bank's commitment to pay is not contingent on the existence, validity and enforceability of its customer’s obligation; this is called an “abstract” guarantee; that is, the bank’s obligation is to pay regardless of any disputes between its customer and the beneficiary. The issuance of letters of credit is a private transaction and does not result in the issuance of any public trading securities.

 

Why do we have standby letters of credit?

The standby letter of credit comes from the banking legislation of the United States, which forbids US credit institutions from assuming guarantee obligations of third parties. (Most other countries outside of the USA continue to allow bank guarantees.) To circumvent this US banking rule, the US banks created the standby letter of credit, which is based on the uniform customs and practice for documentary credits. In 1998 the International Chamber of Commerce (ICC) added ISP98 (International Standby Practices 98) as the rules to guide standby letters of credit. These rules are slowly being adopted; however, many of the standby letters of credit continue to rely on the ICC’s older guide, Uniform Customs and Practices for Documentary Credits, 1993 revision, ICC Publication 500.

 

Who are the parties to the standby letter of credit?

• The Applicant. This is the customer of the bank who applies to the bank for the standby letter of credit. He must provide collateral to the bank or have sufficient credit to induce the bank to issue the instrument. He also must pay the bank a fee for issuing the instrument.
• The Issuing Bank. This is the applicant’s bank that issues the standby letter of credit.
• The Beneficiary. This is the party in whose favour the instrument is issued.
• Confirming Bank. This is a bank (usually located near the beneficiary) that agrees (confirms) to pay the beneficiary rather than have the issuing bank pay the beneficiary. The beneficiary pays the Confirming Bank a fee for this convenience. The Confirming Bank then collects from the Issuing Bank the amount paid to the beneficiary.
• Advising Bank. This is the bank that represents the beneficiary. It may accept the letter of credit on behalf of the beneficiary and collect on it on behalf of the beneficiary. In order for the transaction to be a bank-to-bank transaction, the advising bank works for the beneficiary to keep the instrument in the banking system. Sometimes the Advising Bank also is the Confirming Bank, but not always.

What is the purpose of the standby letter of credit?

The standby basically fulfils the same purpose as a bank guarantee: it is payable upon first demand and without objections or defences on the basis of the underlying transaction between the applicant and the beneficiary. It is up to the beneficiary to decide whether he may accept a standby.

 

What are the types of standby letters of credit?

• Performance Standby. This instrument supports an obligation to perform other than to pay money including the purpose of covering losses arising from a default of the applicant in completion of the underlying transaction.
• Advance Payment Standby. This instrument supports an obligation to account for an advance payment made by the beneficiary to the applicant.
• Bid Bond/Tender Standby. This standby supports an obligation of the applicant to execute a contract if the applicant is awarded a bid.
• Counter Standby. This instrument supports the issuance of a separate standby or other undertaking by the beneficiary of the counter standby.
• Direct Pay Standby. This instrument serves to support payment when due of an underlying payment obligation typically in connection with a financial standby without regard to default. This standby is also used to directly pay an obligation where the only conditions of payment are the passage of the term and presentment of payment.
• Insurance Standby. This instrument is an insurance or reinsurance obligation of the applicant.
• Commercial Standby. This is the most used standby and it supports the obligations of an applicant to pay for goods or services in the event of non-payment by a business debtor.

Are standby letter of credits transferable?

Assignment of Standby letter of credit proceeds -The beneficiary can assign the proceeds of a standby letter of credit. But this assignment does not assign the rights of the beneficiary as “drawer” on the standby letter of credit, and only the beneficiary may exercise the “drawer” rights and present the demand for payment under the terms of the standby letter of credit unless the terms of the instrument provide otherwise. This means that the assignee may receive the proceeds of the standby, but in order to obtain those proceeds the beneficiary must first make the demand for payment. This also means that the beneficiary can sell by assignment, at discount, the benefits of the standby. An assignment of proceeds requires notice to the issuing bank of this action; otherwise the issuing bank would pay the beneficiary rather than the assignee.

 

Transfer of Standby letter of credits. Standby letter of credits can be transferred to a third party ONLY with the written consent of the issuing bank AND the beneficiary. Are standby letter of credits the subject of trading?

There is no public market for the trading of standby letters of credits. Standby letters of credits can only be transferred or the proceeds assigned in private transactions (as previously noted above).

 

Standby letters of credit do not have CUSIP or ISIN numbering. Standby letters of credits are not trading securities, trading debt instruments, or trading investment funds, and therefore are not subject to the rules and regulations of the Security and Exchange Commission.

 

Bank Guarantees

A letter of guarantee is a surety bond, addressed to a government agency or organization, or other natural or legal entities, in which the bank pledges to pay a stipulated amount under stipulated terms and conditions in the event that a contractor fails to fulfil some specified contractual obligation or duty.

• From the obligor's perspective, going into business by receiving a letter of guarantee from a reputable bank.
• From the addressee's perspective, having guarantee of compensation if the work is not completed.

MCGCL is often asked to provide Guarantees or Bonds on behalf of its customers, who may be importers or exporters, traders, middlemen or possibly contractors who have to give some form of undertaking to their counter-parties. The Guarantee is a written undertaking from a bank that if a customer does not honour an obligation to perform a particular function or service, the bank will pay over a sum of money on behalf of that customer to a named party.

 

Bank Guarantees or Bonds can be Conditional or Unconditional. When a guarantee is conditional, that anyone who wishes to claim under that guarantee must fulfil certain conditions before the guarantor is prepared to pay the appropriate sum to the beneficiary. When a guarantee is a simple demand guarantee, this means that the beneficiary named in the document is able to claim the benefit stated in the guarantee by simple demand.

 

How does it work?

The applicant fills an application form for issuance of a bank guarantee in which he specifies the name of the beneficiary, tenor, amount, expiry date and purpose of guarantee. The most commonly used guarantees are: Bid / Advance payment / Performance bonds / Customs guarantee and Payment guarantees.

Benefits:

• Access to MCGCL’s network
• Experienced and professional trade processing service
• Competitive Issuing fees

What Is A Bank Guarantee?

A Bank Guarantee involves a financial institution providing a guarantee that a debt will not go unpaid. This kind of transaction gives the person or institution a safety net should the debtor be unable to make good on his borrowed money. If this situation does occur, the bank that provided the Bank Guarantee is responsible for the balance owed. Bank Guarantees can provide the necessary references to obtain a loan for goods or services. By procuring this type of instrument, a business will be able to purchase the needed capital to start or maintain their services to others. Since a bank is “backing” the customer, the institution providing the loan has no reason to find the customer unworthy of a loan. Whether the customer follows through or not, the loan will still be paid back without any hassle or interference of collections agencies.

When Are Bank Guarantees Most Useful?

Bank Guarantees are most useful when there is not a previous relationship between two parties. International transactions are one example of this necessary safety net. Since there is no pre-existing relationship, one party will have no proof that the other will follow through on his or her promises. A bank guarantee takes the risk out of this situation, and allows both parties to participate freely, knowing that the transaction will be followed through, whether by the original party, or by the bank offering the guarantee. Risks are certainly a part of business, but unnecessary ones are not.

Do You Need A Bank Guarantee?

The answer to this question is found in the answer to a few other questions, such as: Would you profit from transactions that you fear might not work out were you to become involved? Could you provide your services more freely and more widely if the risk of the other party not following through were lower? Simply put, a Bank Guarantee takes the fear out of stepping out on a ledge. If you know there is a safety net, you can feel free to not only walk, but do cartwheels. Think of how vast your connections and services could be if you just had a little bit of a safety net. That’s what a bank guarantee can do for your business.