Bank Guarantees & COVID-19

Since the start of the COVID-19 pandemic the bank guarantee market has gone berserk. Globally banks are withdrawing the availability of credit facilities to small and medium sized companies. As a result, the number of companies seeking to monetise bank guarantees has gone through the roof.

The number of finance houses that have the ability to provide bank guarantees for monetisation are very few and far between. Even companies who have bank guarantees for monetisation are finding their own banks turning them away.

Why you ask yourselves would banks turn away perfectly good business. The answer is simple. They are sticking with their tried and tested larger companies. Most of their loans during the pandemic are government guaranteed. Also, unsurprisingly, they can trade for their own account in the markets and make much more than lending to small and medium sized companies.

The rush for bank guarantees has accelerated since June of this year. Once companies understood that not only can they be supplied with bank guarantees but be monetised as well, the opportunity was too good to be missed.

Two words of warning!

One, the bank guarantee market is small by comparison to many other markets. Therefore, the availability of bank guarantees for monetisation is not unlimited.

Two, and very importantly, you may see on the internet and elsewhere offers of bank guarantees from USD/EUR/GBP 1 million to 5 billion. The figure 5 billion cannot be justified under any circumstances. It is there to impress potential clients and is con. You will lose your money, so avoid like the plague.

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