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Discounting a Bank Guarantee

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Discounting a bank guarantee.

It is not possible to discount bank guarantees.

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The answer is no, but we mention this here as there has been a great deal confusion between the Loan to Value against a Bank Guarantee and discounting.

Discounting is a financial term and can be expressed in different terms for different transactions. For this example, a bond can be discounted for 10% of face value, but the owner can receive full value at maturity. However, a Bank Guarantee cannot be sold, therefore cannot be discounted.

The confusion arises where a lender offers an LTV, (Loan to Value), of say 90% of face value of the Bank Guarantee, which could look like a 10% discount. The Bank Guarantee is not being discounted it is being lent against or credit lined, which is exactly the purpose for which it was issued.

There are many companies and individuals who purport to be able to discount Bank Guarantees, and they should be avoided at all costs.

If you have any further questions on this or any other subject related to bank guarantees, then you can search our frequently asked questions where you will hopefully find the answer you are looking for. Alternatively you can ask us a question and we will answer it for you.

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