Glossary

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 are not 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. The misunderstanding likely arises because 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 in 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 divided.

The term “to discount a Bank Guarantee” is an incorrect term and often used as ‘slang’ by non-professionals who actually mean ‘credit line’. Beware of any party that uses it.