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Leasing a Bank Guarantee
Can you really ‘lease” a Bank Guarantee?
The word Leased in the term Leased Bank Guarantee is in fact a misnomer, the correct technical term is Collateral Transfer. Financial historians suggest that Leased is derived from a commercial leasing contract that has similarities to a Leased Bank Guarantee contract. However, Leased, in the context of Leased Bank Guarantee (or Leased Standby Letter of Credit), is rooted in todays’ financial jargon and is here to stay.
To lease a Bank Guarantee two parties, enter into a contract – a Collateral Transfer Agreement. One party (the Provider) and owner of the asset, will transfer the Bank Guarantee to another party (the Beneficiary) for a limited period of time – usually one year. The ownership of the asset then reverts to the provider on expiry of the Bank Guarantee. The Beneficiary will pay the Provider a “Contract Fee” in payment for the use of their asset. On receipt of the Bank Guarantee, the Beneficiary is free to approach their bank and apply for a line of credit or bank loan, (alluded to as Credit Guarantee Facilities), utilising the Bank Guarantee as security. The Beneficiary must ensure all loans and credit lines are repaid before the expiry of the Bank Guarantee.
Can you Lease a Bank Guarantee?
No, you can not lease a Bank Guarantee. The term “lease” in reference Bank Guarantees is a misnomer. The correct technical term is Collateral Transfer, or to obtain a Collateral Transfer Agreement in relation to a Bank Guarantee.
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