Discounting A Bank Guarantee

Discounting is a financial term. It means for a debtor to delay payment to a creditor for a given period of time by paying a charge or fee.

Since a Bank Guarantee is already an instrument to secure a future or conditional payment to specific parties, Bank Guarantees cannot be discounted.

Bank Guarantees cannot be divisible or transferable.

This is a common error and arises from misunderstanding the terminology. When one refers to ‘discounting a Bank Guarantee’, they often mean to credit line or borrow money against it. I would imagine that the term is misconceived by the fact that securing loans against a Bank Guarantee is often given on a Loan to Value (LTV) of the Guarantee’s face amount. A credit line against a Bank Guarantee may be given as a percentage of its face amount; i.e. to borrow 90% of the Bank Guarantee’s value is a ‘discounted’ amount of face value.

Some may refer to the fact that they already have a Bank Guarantee to their account from a third party and are willing to ‘transfer’ it to a lender (or buyer) in return for immediate cash. Since Bank Guarantees are written to a specific party for a specific purpose, they cannot be transferred or divisible. They cannot be bought or sold.

The term “to discount a Bank Guarantee” is an incorrect term and often used as ‘slang’ by unprofessionals who actually mean to ‘Credit Line’. Beware of any party that uses it.

There does exist structured facilities to allow bank guarantees to be effectively leased and credit lined simultaneously. Search the term ‘collateral transfer‘.