As businesses continue to source overseas suppliers and open up new markets for their products, the impact on cash flow cannot be underestimated. Companies are now looking beyond traditional bank financing such as an overdraft to more creative methods that allow funding to be provided off the back of existing trade cycles. Businesses can then release capital which can be used to offer customer discounts or extend credit terms resulting in a competitive advantage for their company.
Tracey Davenport, Relationship Director with a leading European commercial bank, encounters this regularly. “Businesses realise they cannot support their suppliers and wait for customer payments from across the globe while taking care of daily operations all from their overdraft. With companies entering import and export agreements in countries like China or India, they need a way to manage these relationships while not putting pressure on their operational cash. The challenge is educating businesses there’s a better way to finance trade than through a limited and potentially expensive overdraft facility.”
Companies continue to outsource their supplier relationships in traditional areas such as the Far East, but new markets such as Poland, Turkey and Eastern Europe offer a lower cost base alternative and faster access to finished goods. The problem many businesses find is having the support of their local bank to provide finance against bills of exchange, letters of credit and trade documentation.
Mr Davenport commented, “Companies expanding into new countries – either through supplier or customer relationships – need to make sure the bank in that respective country is financially sound. The problem many banks have is their corresponding bank network can be very limited which has an overall negative impact. Businesses that look to bridge their funding gap through trade finance have to review the partner banks their suppliers and customers use then find the right bank to work with in their home country.”
Trade finance services can be tailor-made to individual business requirements resulting in enhanced financial management and improved cash flow. For example, by raising finance against documentary credits – companies may be able to benefit from funds being released immediately. With Import Documentary Credit advances, it may be possible to negotiate discounts from suppliers which can help improve gross margin for the business. For an established import/export business, a trade finance solution could provide a low cost non-recourse fixed rate form of finance along with enhanced sales opportunities.
If your business is considering a new business partner or new export country, trade finance is a way to reduce your risk and help improve your profits in the future.
The Standby Letter of Credit (SBLC) is classified as a “letter of credit” (LC), also called “documentary letter of credit” (DLC). It is a term widely used to secure payments in national and international trade. The document is issued by a financial institution, at the request of the buyer. The buyer also provides instructions for preparing the document.
A standard commercial LC is used principally in international trade finance dealings of substantial value, for trades between a provider in one area and a client in another; which usually provides an irrevocable payment bank undertaking. However, there are other purposes and uses of a DLC.
The letter of credit format under a Standby Letter can also be used for payment on a transaction. When redeemed, the Letter compensates an exporter. Additionally, an SBLC can be used in a land development effort to ensure that approved public installations (streets, sidewalks, storm water system ponds, etc.) will be built. The companies to a LC are usually a beneficiary who is to obtain the money, the issuing bank of whom the applier is a client, and the advising bank of whom the beneficiary is a client.
The International Chamber of Commerce (ICC) in the Uniform Custom and Practice for Documentary Credit (UCPDC) defines an LC as follows:
An arrangement, however named or described, whereby a bank (the Issuing bank) acting at the request and on the instructions of a customer (the Applicant) or on its own behalf:
Is to make a payment to or to the order third party (the beneficiary) or is to accept bills of exchange (drafts) drawn by the beneficiary.
Authorized another bank to effect such payments or to accept and pay such bills of exchange (draft).
Authorized another bank to negotiate against stipulated documents provided that the terms are complied with.
A key principle to remember with the Standby Letter of Credit is banks deal only in documents or goods and do not involve themselves in the commitments and contracts between the two parties directly. The concern of the issuing bank is the terms and conditions of the letter of credit itself. The decision to pay by an SBLC is based entirely on whether the documents submitted to the bank appear on their face to comply with the terms of the LC.
Unlike a traditional LC where the beneficiary obtains payment against papers demonstrating delivery, the SBLC may allow a beneficiary to obtain payment from a financial institution even when the applier for the credit has neglected to perform as per bond.
Initially used by the depository financial institutions in the United States, the standby letter of credit is very much alike in nature to a bank guarantee. Under this context, the main object of writing out such a credit is to secure bank loans. The SBLC instruments are usually cut by the appliers bank in the applicant’s country and apprised to the beneficiary by a bank in the beneficiary’s country.
How Is A Standby Letter of Credit Used In Project Financing?
Although some restrictions and conditions apply from one instrument to the next, all letters of credit are negotiable bank instruments. This allows the instrument to be rated and valued and exchanged for consideration. In other words, being a bank instrument not unlike a bank guarantee, the standby letter can then be monetized.
The use of this type of LC is almost altogether separate in purpose and issuance than a traditional import LC. Asset holders can leverage their financial holdings by issuing bank instruments for the purpose of making loans and issuing lines of credit for project financing.
The text or legal verbiage used on the SBLC will likely differ in substance from its use in payments for international trade, but will still keep intact its identity and core functionality as a DLC. Once an applier’s issuing bank agrees upon the language of the bank instrument with the lender’s beneficiary bank, the instrument would be issued usually through the SWIFT interbank communication protocols to make the necessary bank guarantees in the delivery process.
The most commonly used SWIFT communication for documentary letters of credit is the SWIFT MT760. This format of the SWIFT code is used when orders are made for a bank to aval (make commitment) with full banking responsibility on a promissory note. With the successful execution of the SWIFT MT760 the instrument is also considered to have been “fully delivered” from the issuing bank ledger to the beneficiary bank ledger.
By doing this an asset holder can leverage and monetize the financial assets on account with a bank and thus promote project financing through credit enhancement; a process of providing cash collateral security through bank instruments making loans and lines of credit.
Banks can then allow the financing against bank instruments issued from an asset holder on behalf of a beneficiary, which beneficiary constitutes a lender looking to make loans for an applicant seeking project financing.
The applicant approaches both the asset holder and its issuing bank concurrently with the lender beneficiary and its bank. Through a fee-based contract with a service provider the applicant can utilize the asset holder’s banking capability and credit worthiness to fulfill the lender’s security requirements for making a line of credit towards project funding. The bank instrument may be the primary security or secondary collateral used to make the loan.
The rating of the issuing bank as well as that of the letter of credit itself make up some of the constituents the lending ratios are based on. Other parameters may also include the viability of the project itself, the assets of the project, the assets of the company applicant, and the credit worthiness and financial soundness of the applicants involved.
One of the key components to the transaction for the asset holder, or original owner of the cash assets backing the standby letter, is ensuring the applicant is successful in getting a banking undertaking from a top rated and financially sound bank. The bank undertaking makes promises to guarantee the safe return of the instrument upon its contracted term expiry unencumbered and free of any liens.
This may sound easy enough, but most underestimate the willingness of a beneficiary bank to guarantee such a promise on behalf of its borrower unless they feel a) the project is sound, b) there is a sound repayment plan with exit strategies in place for fail safes against potential default, and c) the client has the wherewithal to make extensions on the loan should they be required, and they often are.
The beneficiary bank cannot return an instrument before the loan is repaid and lien removed. Like it would be expected of a lender they will go through often exhaustive measures to ensure their risks are minimal, otherwise there will be an unwillingness to stand behind the loan undertaking in the first place.
Most notable PEG video productions were typically the province of a few well-funded public access media channels that had a strong working partnership and support of the local cable franchise, civic and corporate leaders, and the community. While still true today, there’s now another source of finance that should be considered, too-crowdfunding.
For example, Jeff Dobbs, a small time video and film producer, sought needed funding to the tune of $54,000 to finish production of his documentary film, The Life of Ralph Stanley; Master Wooden Boat Builder. To accomplish this, he decided to augment his fundraising efforts with the popular online crowdfunder known as Kickstarter.
Dobbs’ documentary highlights an icon of Maine’s maritime heritage, Ralph Stanley. He’s a recipient of the nation’s highest honor in the folk and traditional arts from the National Heritage Fellowship, including recognition from a sitting President along with numerous institutions for his life’s work in boat building.
Even though Stanley hails from such an unheard of place as Mount Desert Island in Maine, his nautical significance resonates throughout the culture heritage of coastal New England. This kind of regional and national significance makes crowdfunding not only possible but also more likely.
What is crowdfunding? Essentially, crowdfunding is collaborative funding via the World Wide Web from like-minded donors. Since 2005, there have been dozens of websites pop up that claim to be the “source” for all kinds of funding projects.
In the Crowdfunding Industry Report, Massolution presents data showing the overall crowdfunding industry has raised $2.7 billion in 2012, across more than 1 million individual campaigns globally. In 2014 the industry is projected to grow to $5.1 billion.
There are 2 main models or types of crowdfunding. The first is what’s called donation-based funding. The birth of crowdfunding has come through this model, where funders donate via a collaborative, goal-based process in return for products, perks or rewards. It’s important to note that donors are not “investors,” at least not in the traditional sense.
The second and more recent model is investment crowdfunding, where businesses seeking capital sell ownership stakes online in the form of equity or debt. In this model, individuals who fund become owners or shareholders and have a potential for financial return, unlike in the donation model.
Since different online crowdfunders fill different roles and needs, here’s a glance at the top three aimed at creative projects like film and documentary production, which are listed in no particular order.
Rockethub powers donation-based funding for a wide variety of creative projects. What’s unique about RocketHub is their FuelPad and LaunchPad programs that help campaign owners and potential promotion and marketing partners connect and collaborate for the success of a campaign.
Indiegogo approves donation-based fundraising campaigns for most anything – music, hobbyists, personal finance needs, charities and whatever else you could think of (except investment). They have had international growth because of their flexibility, broad approach and their early start in the industry.
Kickstarter is a site where creative projects raise donation-based funding. Kickstarter is one of the earlier platforms, and has experienced strong growth and many breakout large campaigns in the last few years.
All of this is about the so-called collaborative economy where simpatico enthusiasts come together and share their interest and financial donations for projects that they have a passion for. The question is, can enthusiasts be found for local and regional media production that could enhance the PEG access TV culture? It seems to be worth a try.
I think crowdfunding has the potential to revitalize public access media production that is steadily losing ground to other media outlets-such as YouTube. What do you think? Is crowdfunding a good fit for struggling PEG access channels looking to expand their creative funding? Share your thoughts on Facebook.
If your car insurance is due for renewal and you are considering buying another policy then this article will provide you with important facts that you should know about. Car insurance policies are getting increasingly expensive and you should do all that you can to reduce your costs. How much you have to pay for your car insurance is dictated by a variety of factors as they apply to you and your vehicle.
In this article we will examine coverage limits, your age, gender and marital status, your location and insuring other household members. All of these factors will have a great influence on how much you will have to pay for your policy.
Coverage limits are generally dictated by the price that you are willing to pay for your insurance. A higher level of coverage will generally result in higher premiums. The best way to find a good value policy is to comparison shop. Nowadays it is generally accepted that the best way to do this is by using a car insurance comparison website.
Your age, gender and marital status will have a great effect on the auto insurance rates that you are offered. Insurers rate drivers using a variety of criteria, if you are a young single male driver you will usually have to pay higher rates. If you are a middle-aged female married driver then your rates will be lower. Insurers calculate the best car insurance rates for you by comparing levels of risk. Those groups which are statistically more likely to be involved in an accident have to pay correspondingly higher rates.
Location plays an important part in deciding how much your premiums will cost. Drivers who live in an urban environment will usually pay more than those from a rural area. This is because drivers who live in cities and heavily populated areas are more likely to be involved in an accident, or to have their car stolen or vandalized. Insurers generally offer better rates if you’re able to demonstrate that you keep your vehicle in a garage at night. You may also be able to improve the security arrangements of your automobile by fitting an alarm, immobilizer and steering wheel lock.
Insuring other household members will have an influence on the cost of your policy and the best car insurance rates that you offered. If you have teenage family members living with you and they are added to your policy, then your costs will increase. This may still work out cheaper than if your teenage driver were to have a separate policy in their own name.
In conclusion, there are a variety of different factors which can affect your ability to be offered the best insurance rates. Some of these are coverage limits, how old you are, whether you are male or female and whether you are married or single. Your rates will also be affected by the area where you live and whether other household members are included in your policy.