Your banker, or any banker familiar with your project’s proposal for funding, will want to see our standardized “verbiage” (technical wording) of the financial instrument that’s being requested.
It follows the basic terminology and conditions of well-established Uniform Rules for Demand Guarantees (URDG International Chamber of Commerce pub. no, 758), but note we can also accept ICC 590 or 600 instead. The most common names for this type of guarantee is a Standby Letter of Credit, Standby LC or SbLC. There are other forms that can be used.
Upon approval by at least one of our partner’s funding banks, the bankers that agreed to issue the SbLC/BG will be asked for their written letter of intent (called a Ready, Willing and Able or RWA letter) stating that, once the undertaking is deemed to their complete satisfaction, they will indeed follow through and issue the “operative” (live) instrument via SWIFT and then hardcopy. That will occur as the last step before financial closing, once the project’s funding is contractually arranged with the Family Office.
Download BG/SbLC template | Verbiage essentials | Download RWA Letter template | Deciding which type to use
Practical Tips on Securing a Guarantee
Proper presentation of this request for a guarantee helps start the conversation on the right footing, with the right expectations and underlying assumptions. All guarantors need to be incentivized or they will rightly ask (but maybe not out loud) “Why would we do that?” …
See our set of success tips on obtaining a guarantee here
Here are the three main approaches In3 offer to arrange a guarantee via sponsorship:
- Clients often involve a stakeholder or hired contractor as the sponsoring guarantor (an EPC, EPCCM, General Contractor or major equipment supplier), which is one way to build a motivating incentive. Ask for our presentation materials if this is how you plan to approach your project’s completion assurance guarantee.
- Another way is to involve an “at large” asset owner that would have an interest in leveraging their non-cash assets for a cash return (paid out of proceeds) plus optional equity carried interest for a period of time. If In3 does this for a client we call that a “Done For You” (DFY) premium service. More
- Or instead of an asset owner/manager, a mix of senior debt and CAP’s equity preserves the owner’s equity and makes a strong incentive available to the lender. If you wish to pursue this “hybrid” of debt and equity, where an In3 lender or one you source provides a partial guarantee, we call that Program 3. If In3 facilitates this arrangement, ask for Program 4.
For more: Guarantee Quick Guide | Detailed Instructions (3-page PDF)
What’s in a name?
Bank-issued “demand” guarantee instruments can also use the following less common names, but be careful … this is just the instrument’s title (headline) … the require verbiage MUST largely conform with our template using the same rules no matter what it is named:
- Bank Guarantee (BG)
- Bank’s Letter of Guarantee
- Payment Guarantee (PG) or “Advance Payment Guarantee” (APG)
- Demand Guarantee (DG)
- Blocked Funds, though this usually offers less protection for the issuer, as it is more freely callable.
In the US, an SbLC is effectively the same as a BG, though in the UK and some other markets they refer to this type of instrument as a Bank Guarantee.
When In3 CAP funding’s guarantee is your best or only option
In addition to the above SbLC/BG option, which is the place to start (simply because it is the most widely used), there are two acceptable alternative types of financial instruments:
- An bank-endorsed Promissory Note per “Aval” (AvPN)
- In some countries, a Sovereign Guarantee (SG) from the Ministry of Finance can be issued if confirmed by a local bank.