What is a Collateral?

Collateral is a solid way to prove to the financial institute that the company is a viable borrower. It’s a security in a form of asset or property pledged against a loan. A collateral can be equal to, less, or greater than the value of the loan.

A significant portion of businesses operating globally are unable to access funding due to lack of collateral.

Collateral transfer facilities enable business owners to access collateral from providers at a fee for a given tenure. The collateral is backed by assets/cash and issued by a financial institution on behalf of an applicant/Fund Manager. Fund Manager agrees (through his issuing bank/financial institution) to issue collateral in the form of (a)demand guarantee (the Bank Guarantee/Standby Letter of Credit) or (b) Letter of Credit towards the Beneficiary in return for a ‘rental’ or ‘return’ known as the ‘Contract Fee’. The parties agree to enter into a Collateral Transfer Agreement (CTA) which governs the issuance of the Guarantee. In the course of the relationship between Provider and Beneficiary, the beneficiary may utilize the collateral for their own purposes which may include; security for loans, credit lines or for trading purposes.  At the end of the term, the Beneficiary agrees to extinguish any encumbrance against the Guarantee and allow it to lapse (or return it) prior to expiry and indemnify the Provider against any loss incurred by default of loans secured upon it.

Over recent years, these collateral transfer facilities have become more popular in certain regions as they enable the Beneficiary to have access to substantial credit facilities by using the Guarantee as loan security.

TFC can  help you obtain this important financial instrument within a 48 -144 hour turnaround time upon full submission of documents required.

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