I am looking at an option where a bank is interested in financing an LC for an exporter who does not have enough fixed assets to use as security. The exporter is however proposing to use a performance bond guaranteed by an insurance company.
I would be grateful for advice on this whether it is viable option, what are the dymanics and how the bank can be assured of payment?
Quoting from [koadj]:I am looking at an option where a bank is interested in financing an LC for an exporter who does not have enough fixed assets to use as security. The exporter is however proposing to use a performance bond guaranteed by an insurance company.
I would be grateful for advice on this whether it is viable option, what are the dymanics and how the bank can be assured of payment?
Even it's not usual banks may accept it with consideration of the issuer and the clause of performance bond you will give. but one thing you should concern that when the bank financing with NEGOTIATION method banks will look for your good documents beside quality of LC.
here's my respon for other question that may connected with your problem.
"For Export transaction here's 2 Famous financing facility that provided by the banks :
A. Negotiation line, Facility that will purchase your export documents under LC and
B. Pre-export financing, Facility that will fund your production for export, usually they ask for collateral like fixed asset, warehouse receipt, stocks and inventory or personal guarantee. the banks will not financing your export with only LC as a sole collateral. because of some risks unvocered regarding effectiveness of LC.
Here is maybe some consideration of Banks when deciding to financing with LC as Collateral :
1. Authenticity, Terms and Condition of the LC
2. Ability of Exporter in order to presenting complying documents
3. qualification and bonafidity of Issuing bank or any confirming bank
4. Country Risk of Issuing Bank
5. Others
if you are lucky, then the banks will finance your export transaction, it' will be under reserve and with recourse condition.
But Recently, many banks try to give financing for Export Import Invoice, with using their worldwide network and branches customers.
Rgds"
Rgds