Starting a business or expanding it to reach global markets takes vast amounts of capital. Venture capitalists can provide this kind of financial backing, but part-ownership of the company is demanded in return, usually in the form of shares of stock in the company. Those who wish to get working capital but want to retain ownership and control can seek a SBLC, a pledge of repayment to the lender if the principal defaults.
A Stand By Letter of Credit is part of high finance, far beyond the scope of most investors. This kind of document is used by banks, insurance companies, hedge funds, pension funds, and other big players. Huge amounts of money are moved around by these financial institutions. The process might affect the portfolios of the average investor, but understanding the transactions is not really necessary.
The reputation of the bank or financial entity issuing the Letter of Credit (LC) is the backing for the document. In itself, a LC has no value. The transaction is similar to having a co-signer on a mortgage or a car loan - only on a much larger scale. In both instances, the backer hopes never to be called on to repay a loan or fulfill the terms of a contract.
Of course, no bank will issue such a thing without complete faith in the client. Some sources say that such a document is used rarely. In fact, they claim than even the mention of such a Letter of Credit is a red flag signalling 'Investors beware'. Other information promises that expert advice can make this kind of transaction safe and profitable.
Another term that should be understood is 'private placement'. Securities like stocks, bonds, and/or promissory notes may be offered to selected investors privately, as opposed to a 'public offering' which invites all investors engaged in the market. The securities involved may represent public companies, but the 'invitation only' sale is not regulated by the Securities and Exchange Commission under its general rules.
International law and regulation can make the process much more complex and increase the risk. However, there is a lot of wealth in different parts f the world, in Dubai, for instance. Dubai is an emirate - think principality - that is part of the United Arab Emirates. It's ruled by a powerful family and has virtually unlimited resources to invest or to pledge as security.
The high finance of very rich individuals, nations, or organizations makes the financial world go round. Like all investments, there is risk as well as reward. The Letter of Credit (LC) is not meant to be used; it's a 'last resort' pledge to repay or fulfill contractual obligations that gives a company the scope to work and succeed. Often success requires an initial infusion of funds long before significant returns are realized.
Of course, this is all academic unless you have ten million dollars or more to invest or need that much or more. Those of us who deal in hundreds and thousands will never need a LC. However, it's fun to learn more about this shadowy world - maybe for a novel about a financial struggle on an international scale, where it's hard to tell the good guys from the bad.
A Stand By Letter of Credit is part of high finance, far beyond the scope of most investors. This kind of document is used by banks, insurance companies, hedge funds, pension funds, and other big players. Huge amounts of money are moved around by these financial institutions. The process might affect the portfolios of the average investor, but understanding the transactions is not really necessary.
The reputation of the bank or financial entity issuing the Letter of Credit (LC) is the backing for the document. In itself, a LC has no value. The transaction is similar to having a co-signer on a mortgage or a car loan - only on a much larger scale. In both instances, the backer hopes never to be called on to repay a loan or fulfill the terms of a contract.
Of course, no bank will issue such a thing without complete faith in the client. Some sources say that such a document is used rarely. In fact, they claim than even the mention of such a Letter of Credit is a red flag signalling 'Investors beware'. Other information promises that expert advice can make this kind of transaction safe and profitable.
Another term that should be understood is 'private placement'. Securities like stocks, bonds, and/or promissory notes may be offered to selected investors privately, as opposed to a 'public offering' which invites all investors engaged in the market. The securities involved may represent public companies, but the 'invitation only' sale is not regulated by the Securities and Exchange Commission under its general rules.
International law and regulation can make the process much more complex and increase the risk. However, there is a lot of wealth in different parts f the world, in Dubai, for instance. Dubai is an emirate - think principality - that is part of the United Arab Emirates. It's ruled by a powerful family and has virtually unlimited resources to invest or to pledge as security.
The high finance of very rich individuals, nations, or organizations makes the financial world go round. Like all investments, there is risk as well as reward. The Letter of Credit (LC) is not meant to be used; it's a 'last resort' pledge to repay or fulfill contractual obligations that gives a company the scope to work and succeed. Often success requires an initial infusion of funds long before significant returns are realized.
Of course, this is all academic unless you have ten million dollars or more to invest or need that much or more. Those of us who deal in hundreds and thousands will never need a LC. However, it's fun to learn more about this shadowy world - maybe for a novel about a financial struggle on an international scale, where it's hard to tell the good guys from the bad.
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