How Banking Instrument and Hard Asset Lending Programs Work
Lending programs were developed to assist clients with either financial instruments (BGs, MTNs, LOCs, CMOs, Insurance Wraps, Treasury Notes, Stock Portfolios and other financial assets) or hard assets (emeralds, rubies, diamonds, gold, silver, copper isotopes, iridium, gold dust, real estate and other assets) to free up a rather frozen, long term asset into immediate cash enabling higher return, short term investments.
The only real requirement is that the asset be assigned and lien-able securing the lenders position.
Most program loans range from fifty million (50,000,000.00) to fifty billion (50,000,000,000.00) and are for a period of one (1) year, this process is usually simple and straight forward, and best of all, quick to fund since many lenders use private funds.
First, the client usually will receive a Memorandum of Understanding (MOU) that details the lending process. If acceptable, the client provides all pertinent and necessary documentation validating ownership, authentication and value for initial review along with the signed MOU. Additional documents may be required, so please treat all lender requests with a time-is-of-the-essence urgency. Upon review of asset quality, the Loan Agreement is presented to client for review and completion. The loan review period is about three to five (3 to 5) business days with a total loan process time of about 30 days till day of funding.
Instrument General Process: If approved, usually the instrument will be purchased and held, or held and blocked, for the Lender’s benefit for the period of one (1) year. The Client has the option to “Repurchase” the instrument at its Full Fair Market Value on the day the Repurchase agreement was Fully Transacted. Upon receiving the block on the instrument, the Lender will wire transfer to the bank the loan proceeds. Depending on the quality of the instrument, the advance against the face value averages sixty to eighty percent (60 to 80%), but can be as high as eighty seven and a half percent (87.5%) for larger loans up to 50B.
Hard Asset General Process: If approved, usually the client chooses a top rated American or Western European bank that understands asset lending for their specific asset (HSBC is preferred) that is agreeable to both parties. The bank will then create a Line of Credit or SBLC for fifty percent (50%) of the assets current appraised value. The bank may require the assets to be transferred to the bank or remain in the holding depository they are currently lodged – this is solely the preference of the Client’s bank. The LC/SBLC will be drafted in the Clients name in favor of the Lender. Upon receiving the LC/SBLC, the Lender will mirror the LC/SBLC amount with a wire transfer to the bank.
The key thing to remember when presenting your asset to the bank is the inbound wire. The bank gains an asset at 50% LTV by creating a LOC triggering a mirrored inbound wire transfer with blocked funds that remain in the bank. A bankers dream come true – a no risk loan!
Since this service was created as an expeditious manner for clients to place hard assets into short term, higher yielding programs, lenders prefer the majority – if not all – of the loan proceeds go towards investments. However, they understand that a client may have an immediate capital requirement, so most allow up to 20% of the loaned amount to be dispersed to the client with 80% or more dedicated to investing.
Lender simple interest rates average from twelve and half percent to twenty percent (12.5 to 20%) depending on the asset and loan amount. The higher the loan amount, the lower the interest rate with a 50M minimum and a 50B maximum. Principle with interest is repaid in a single payment at the end of the twelve month loan period.
This lending program allows clients to obtain cash against the stagnant asset in a matter of days while they also simultaneously coordinate high yield investment programs. The loan review and trade compliance process take about 10 days for a simultaneous closing for both transactions.
Here’s a typical loan scenario: Current appraised asset value ,000,000,000 (one billion), 50% of asset value 500,000,000, LC/SBLC created in favor of Lender 500,000,000, Lender wires to bank 500,000,000, Client is allowed up to 20% of funds 100,000,000, Cash for investment 400,000,000.
If you or a client has instruments or hard assets to lend against that that are assignable and lien-able, this type of loan program may be of assistance to you providing a bountiful returns when placed in secure, higher yielding short term programs, which are readily available.
The phrase “The rich only get richer” is never more obvious when you learn how to leverage long term assets for short term higher returns. Learn more at www.InvestorEarth.com.
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