Which is better option ?
SBLC or Corporate Promissory note funding
To obtain Deferred Purchase/Acquisitions SBLC the price is 115%, the client pays only 15% within 5 days and the balance 15 days before maturity, so he can utilize the SBLC during the year and renew for another year, the bank can give credit facility usually between LTV 75% – 85%, an interest rate of about 3%.
Example: obtain SBLC in the amount of $100 million, the price is 15% must be paid within 5 days after delivery of the swift MT760. then you need to submit the project/business to the credit committee of the bank, in order to get the credit request, in the end only the credit committee will approve the LTV 75% to 85%, assuming you get the maximum credit then the credit will be $ 85 million, most likely the interest rate about 3% on the $ 85 million. (When we deduct 15% already paid a payment of the SBLC, and receiving bank fees of about 2%, therefore, bank the remaining credit will be about $ 68 million to use.
With about 68M you need a wonderful trade business to create profits first to get to the obligation to pay the 100%.
The Value to use – $ 15 million + $ 2.55 million (interest of 85 million) + bank credit establishment fee + bank advice and receiving a fee of the SBLC, plus commissions between 1% up to 3%.
Obtain CPN program the price is 15%, these are non-bank funds, the bank needs to endorse the principal and interest/fees(15%), the bank fee for endorsement depends on the Client, usually between 0.5% up to 1%. (this one way to do leverage)
Upon receiving the loan, the interest/fees(15%) as discount + 1% endorsement guarantee for 365 days (one year) renewable + commission 1% up to 3%. (Most of the banks will take 25% of the loan amount and manage it to back the endorsement guarantee, However, there are situations where the bank will require 50% management, it all depends on the client business and Portfolio, moreover if the client having assets to support the endorsement guarantee. then the client will have more funds to use for his business).
(In this situation the client will have as the cash flow use is the highest).
A significant benefit for the CPN funding program.
When comparing a funding product SBLC vs CPN when paying the same 15% within 5 banking days it is obviously the benefit to the CPN funding program, first, the funds are non-bank therefore no need for a credit committee, second you get first the cash/loan then the bank will endorse it, better then monetize or discount because on monetize you need to send the collateral first, and the punch line is on optimal use of the cash net on both programs is about $ 68 million, however, on SBLC still has to pay back to the bank $ 85 million + interest on $ 85 million, on CPN all include in the transaction and more the bank pays yield on the funds used that 25 % or 50%.