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Collateral and Credit Enhancement-Products
The terms Credit Enhancement, Collateral Enhancement, and Credit Enhancement Programs are widely used in the collateral marketplace. These methods of financing have been known since the Phoenician Traders at the beginning of the last millennium BC and since the existence of a medium using money as an intermediary between products.
When a borrower is unable to offer sufficient collateral to cover a loan or provide an assurance that the loan will be repaid in full, he may be required to seek a form of "insurance," a loan back-up or support, to cover the loan in the event of default and they all have the pay-on-default feature. That means in the event the borrower defaults on his loan, the underwriter or financier will have to make it good… repay the loan.
Simply stated, a Credit Enhancement or Collateral Enhancement is a form of collateralization. And the specific options offered by substantial financiers or underwriters based upon the credit rating of the borrower are known as Credit Enhancement Programs.
You will hear people making references to "major worldwide banking institutions" or "better known insurance companies rated minimum A, or best AAA" as the preferred source of funds to underwrite these transactions. Actually, it’s not the size that matters. It’s the financial condition of the underwriter.
An acceptable collateral should be written by a substantial institution (banks, insurance companies, trust companies, private entities etc.) whose credit is good and world known.
Collateral Enhancements or Credit Enhancements are top International Financial Debt Instruments that offer creditability to financial statements and gives you the opportunity to obtain the funds you require.
There are a number of specific financial instruments that can be used as Collateral Enhancement.
Below is a brief outline of each type of enhancement. Click on any headings to obtain more detailed information and to make contact with us about the instrument you need.
Bank Guarantees
Bank Guarantees are issued by international lending institutions and used as a line of credit to accomplish a multiplicity of tasks. Bank Guarantees are generally issued for 1 year and 1 day, with optional renewal periods. (May be possible to get it for a lesser period.)
Stand By Letter of Credit
SBLC’s are financial instruments that can reserve, confirm or promise funds from one institution to another or to a business. This can be used for credit enhancement or as collateral.
Proof of Funds
Proof of Funds service is not a loan, but is a perfect, inexpensive and fast way to add strength to your current financial profile, show reserves or buy time in your transactions
Letter of Credit
A standard, commercial letter of credit is a document issued mostly by a financial institution, used primarily in trade finance, which provides an irrevocable payment undertaking