What you need to know about monetizing your banking tool

What you need to know about monetizing your banking tool

This methodology in its truest essence dates back to the 1940s shortly after World War II, when heads of state and banks came together to devise ways in which money could be generated to rebuild a Europe that was completely devastated as a result of the war. This meeting is known as Bretton Woods.

Fast forward to today, the methodology can and is being used to raise money for infrastructure projects around the world. Major financial bodies such as the World Bank and the IMF use specialized trade programs that generate enough money to finance large infrastructure projects.

There is a common misconception about bankroll monetization and most people, including brokers, have very little or no knowledge of what it takes to successfully monetize a bankroll.

Misconceptions about banking instruments

It is not unusual for many people to think that if they have a bank instrument such as a standby letter of credit (SBLC) from a bank, they can cash it out. These people expect that the service provider (Monetiser) will automatically give them a few million in cash just like that. However, the reality is much different.

In reality, there are many people who buy a standby letter of credit and are then shocked to learn that their newly purchased banking instrument was never intended to be monetized. Therefore, the bank instrument is considered worthless for its intended purpose.

Purpose of banking instruments

SBLCs issued for monetization or for the purpose of securing lines of credit are generally worded specifically and must include certain terminology. Not all SBLCs are designed for monetization, so it’s important to understand what you’re paying for and what you’re getting to make sure it works for your purpose.

The truth of the matter is that having the money to purchase a bank instrument does not automatically mean that your SBLC can or will be monetized. In addition, there are a limited number of service providers involved in monetizing banking instruments.

If the purpose of issuing a bank instrument is to finance projects, it is important to note that all the “components” must be present. In other words, the SBLC provider, bank issuer, monetizer, and merchant must be in sync with each other to have the best chance of raising funds for project financing.

SBLC considerations

• Service provider

Ideally, you should know WHO will monetize your banking instrument before you purchase it. This may not happen at first if you use the services of a broker and bring him an instrument that you already own. Will brokers be inclined to first request a copy of your instrument and run it past their provider to see if it can actually be monetized? You should also understand that not all SBLCs are the same.

• Issuance of bank instrument and bank rating

Then pay attention to where does the standby letter of credit come from? This will have a big impact not only on whether the tool can be monetized, but also how much LTV (loan to value) you can expect to receive? For example, instruments from the United Kingdom would have a much higher credit rating than an instrument from Argentina. Jurisdictions and branches of law are not the same and you should know and understand the differences. This will also affect the cost and acceptability of the bank instrument for third party monetization.

• Bank instrument text

If possible, request a copy of the DOA, which should contain an excerpt of the text of the SWIFT MT-760 (the actual SBLC) and read it carefully. Pay attention to every word and have it reviewed by professionals and the beneficiary before you pay for it. Check if the banking instrument is suitable for monetization and if possible try to find a service provider to monetize it beforehand. Although it involves some extra work in the beginning, it will pay off in the long run. There are two key words to look for when reviewing the text that is “Backed by Money”. Most monetizers will not be able to do anything with a bank instrument that is not backed by money.

• Purchasing an SBLC for a line of credit

If you are establishing a line of credit with your bank, it will be helpful for them if you can show them the text ahead of time. However, just showing someone your SBLC text may not be enough to establish a line of credit. Of course, text is the first thing a monetizer will look at, but it’s far from the only thing we’ll look at.

Monetization of banking instruments; Things to keep in mind

There are a few things worth looking at. For example, when using a banking tool to raise funds for a project, a solid business plan and solid relationships are a good start. In other words, you must have an actual project and a professional business plan.

If your whole business plan was to get the standby letter of credit and then send emails to bankroll monetization companies in hopes of finding someone to give you money, then that wouldn’t be considered a “business plan.”

• Other supporting documentation

If you have a solid written business plan for a new company, for example in the energy sector, as well as PPAs and purchase agreements and need a bank guarantee to secure credit lines, this would more than likely be good for the bank.

The key is that you need to have your documents together and you need to have a tangible way to make money from your project or investment. These are the things that credit providers look for. After all, the bank must like and believe in your project if you expect it to raise credit against a bank instrument. Anyone can purchase an SBLC, but only those who have done the hard work and homework will have a good chance of monetizing the instrument or initiating a line of credit if that is your ultimate goal.

• Your own line of credit

If you go the route of a third party blocking millions of dollars to create a line of credit for you secured by a bank instrument, be prepared to listen and follow the instructions of the credit provider – they help you, not the other person around. You are pitching the investor, not the other way around. It is not uncommon for the project sponsor to believe that theirs is the most important project and that their requirements must be met. It doesn’t work like that.

If the credit line provider has established procedures and guidelines for you to adhere to, it is recommended that you comply with their procedures. One thing is for sure that service providers are in need given the lack of liquidity in the banking world and hence they can choose who they want to work with. We are witnessing many service providers abandoning transactions due to customer difficulties and lack of support.

Be prepared to submit a complete corporate information sheet (or bio/application) about your company and its employees, along with a complete business plan. In case of tool monetization, be prepared to send the text to your SBLC. Explain how you acquired the banking instrument and why you need it monetized.

• Your exit strategy plan

Go into detail about how you plan to exit this strategy and how you intend to return the instrument at the end of the term. However, in case of monetization of an instrument, the monetizer will be responsible for returning the instrument at the end of the term. Essentially, you will assign the tool to the monetizer to be monetized. Note that in many cases you may need to show proof of funds (bank statements, not blocked funds). If you follow the instructions and what is required of you, there should be no problem establishing your line of credit and/or monetizing your SBLC.

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