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The Ugly Truth Behind Bank Instrument Leasing

The business world is loaded with brokers desperate for money. Many of these are inexperienced with small pockets and huge demand for private placement programs. The introduction of bank instruments leasing business was created by this situation in mind.

Leasing of bank instruments is a process involving assignment of bank instrument on a temporary basis for a fee agreed upon by both instrument owner and potential borrower. The concept is similar to that of proof of funds that has been in existence since years. In short, when the owner allocates funds to a temporary beneficiary, then that beneficiary can show the funds for transactions in future requiring authentic proof of adequate capital.

In case, you come across a broker who tries to lease bank instruments, he will claim that you can move into private placement, get access to loans, get finance for projects, and much more. All of this is promised when you pay an upfront fee via Escrow for accessing a bank instrument.

These brokers also claim that the instrument will be in your own name and you may use it the way you want. Although this may be true in some cases, chances of risk are more! You need to understand that most of the bank instruments these days are 100M and more. These are owned by very wealthy individuals all over the world. So why would they allow you to use it as collateral, especially for risky transactions? And why would they be interested in doing so for just a small fee of 5-10% annually?

Hence, you need to get your facts right and stay away from the risk.

Here are some real facts you need to look into:

1. Not Used for Private Placement Programs

Federal authorities regulate real private placement programs. The client must adhere to the rules to make the most out of assets. When you claim to own an asset on a contract, and it is leased in reality, you are committing fraud. Banks are smart enough to find it. Private placement programs would require you to block bank instrument in favor of the trader. This is done through MT 760. The Bank never allows you to block instrument in someone else’s favor.

2. No Loans against a Leased Bank Instrument

Leasing a bank instrument does not mean you can get a loan on it. The bank would only loan it to the real owner of the asset. So the only choice for a loan against leased bank instrument is to reach out to a private lender.

3. Fraudulent Transactions

Most of these deals are frauds. It is almost impossible to find a broker associated with an individual who actually owns this particular type of asset. Also the owner should be willing to lease the asset for such a low fee. Lease of bank instruments is a huge risk!

4. Protection Only for Provider and Brokers

A bank instrument lease contract does not have warranties or representations prepared by the brokers or providers.  This lets them block an instrument in your favor combined with restrictions. In case, you cannot use this for anything, the loss is entirely yours. Although they need to “deliver” instrument through SWIFT prior to the funds gets released from Escrow, there is absolutely no guarantee that the instrument will be delivered to you properly. In short, the process is a huge gamble.

5. Leasing Fees doesn’t Make Sense

Yes, it doesn’t especially when compared to the risks it brings to the owner. Brokers usually charge upfront fee for leasing bank instruments. They cleverly claim that the owner of the instrument owner is making the most of it. Now this fee may go as higher as 5-15% of the face value especially, when the bank instrument gets leased for one year. So, assuming you the owner of a bank instrument of value 100M, transferring it for just a few percent annually will be a huge risk. Since you have already receive 6%+ annually on the coupon as an owner, you don’t need the extra cash.

Leasing instruments don’t make sense. Even bank instruments providers claim that. Brokers still push the deals to make big commissions.

In a Nutshell
Using common sense will work more than prayers and hope when dealing with private transactions. This is very important to mitigate your risk. Leasing of “proof of funds” and liquid assets is a feasible strategy. However, leasing bank instruments can be nothing more than a disappointment.
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