What is the SBLC?

A standby letter of credit (SBLC) is a means of payment or a security for payment.  SBLC has two main popular purposes:

1) Credit enhancement for loan or enhance credit line enhancement,

2) Payment guarantee for international trade for good and/or services.

The SBLC is a highly popular bank instrument used globally. In fact, clients can either lease or purchase it. Specifically, a purchased SBLC is cash-backed. On the other hand, SBLC for lease is asset-based.

Besides the two main types of purchases, many clients also use SBLCs for monetization purposes. Moreover, they sometimes even use them for Private Placement Programs (PPP).

An SBLC is a widely used bank instrument recognized across the globe. Clients can choose to lease or purchase it, depending on their financial strategy. Typically, a purchased SBLC is used for monetization purposes.

But what are the key differences between an SBLC and a DLC (Documentary Letter of Credit)? To clarify, both serve financial assurance purposes, yet they differ in structure and use.

Under DLC payment terms, payment is conditional on the performance of the seller. Under SBLC payment terms, payment is conditional on non-performance of the buyer.  

What are the differences between SBLC and LC (letter of credit)?

LC is a primary instrument of payment, so the goal is to use the LC to complete the transaction. By contrast, a SBLC is a secondary instrument of payment. If a seller is paid by a SBLC, it means that something went wrong with the buyer.

What is the monetization and how it works?

To monetize an SBLC, you must first take possession of the instrument in the form of a transmitted MT760. Additionally, the SBLC must be fully paid for before you can request monetization. Therefore, understanding the payment requirement is crucial before proceeding.

Monetizing bank instruments such as an SBLC is the process of liquidating such instruments by converting them into money. In other words, it involves turning a financial instrument into usable capital. It takes approximately 5 to 30 days to monetize an SBLC.

How does a SBLC actually work?

In case of securing a loan, a SBLC guarantees the payment of a specific amount of money to a bank if the applicant or beneficiary defaults. However, in such cases, the SBLC also guarantees that the bank will receive the required payments once the obligations have been fulfilled.

In case of international trade, If the buyer fails to pay the seller for goods received, the seller can claim against the SBLC. The seller instructs their bank to claim on their behalf. Their bank contacts the buyers bank for payment. Under the terms and conditions of the SBLC, the buyer’s bank has a legal obligation to make the payment. 

Who needs the SBLC?

For international trade, a seller may feel their buyer lacks a certain creditworthiness. The seller requests the buyer to provide a SBLC in the seller’s favor. The buyer will instruct their bank to issue a SBLC in favor of the seller. Therefore, the buyer’s bank becomes the issuing bank and the seller’s bank becomes the receiving bank.  

In case of applying for bank loans, the bank may require the applicant or borrower to enhance line of credit of increase its collateral. The application or borrower can purchase a SBLC for applying for the loan. Some receivers who purchase SBLC may use the bank instrument to monetize or even participate in PPP to make profits.

Who provides the SBLC?

The provider issues the SBLC through their bank, which transmits it via SWIFT (MT760) directly to the receiver or beneficiary’s account at their receiving bank. This process takes place exclusively through interbank communication.

What are the SBLC particulars or terms?

Issuing Banks: Top-tier banks, including HSBC, Deutsche Bank, Barclays Bank, and many others among the world’s top 25, typically issue SBLCs.

The bank instrument face value can be from $/€100 million to $/€ 50 billion. Moreover, the issuing bank may release any amount exceeding $/€500 million in tranches, depending on the receiver’s or beneficiary’s intake capacity, until it reaches the maximum limit.

The prices for leasing SBLC are between 4% to 10% plus intermediary fees of 2%.  

The prices for purchasing SBLC are between 24% to 50% plus intermediary fees of 2%.  

The transaction procedures are roughly as followings:

Pre-Advice SWIFT via MT-799, MT-760 to Buyer’s bank with Hard Copy to follow by bank bonded courier within seven (7) banking days after authentication of payment, payment by unconditional SWIFT Wire Transfer via MT103

What are the documents for applying the SBLC?

The applicant or receiver must provide the following documents for consideration:

CIS (Customer Information Sheet)

Corporate Board Resolution

Non-Solicitation Letter

Signatory’s Passport Copy in Color

Corporate Registration Copy in Color

Updated POF (Proof of Funds), BCL (Bank Comfort Letter), or BS (Bank Statements)
ATV (Authority to Verify Letter)
The applicant or receiver will receive the Deed of Agreement (DOA) template along with all related documents before submitting them to the provider. After receiving the DOA and related documents, the receiver must complete, sign, and seal all documents, then send them back to the provider for countersignature. The transaction procedures begin once both parties sign the DOA and related documents and lodge them with their respective banks.

What happens if the leased SBLC is expiring?
If the SBLC is leased and approaches its expiration date, as outlined in the signed DOA, the receiver or beneficiary must promptly return the bank guarantee to the issuing bank without any encumbrances or liens. Additionally, the receiver or beneficiary must indemnify the provider against any losses related to the instrument.

The beneficiary also has the option of extending the contract because DOA always comes with an option of rolls and extension of up to 5 years, sometimes even 10 years.

Why does the provide do not provide DOA or countersign the DOA?

Both the provider and the receiver agree to enter into a DOA contract that governs the issuance of the guarantee as guided by International Standard Practices of the industry and the ICC.

Only AAA-rated banks issue SBLCs, and most banks around the world widely accept them. However, based on our past experience and relationships, we may choose not to send a SWIFT to certain banks or financial institutions.

How to apply for a SBLC?

Please contact us directly through email. Additionally, we will guide you on the specific documents required to sign the DOA.

Please specify the SBLC particulars such as lease or purchase, currency, face value, tranche schedule and provide the above documents needed for applying the SBLC.

Applicant, receiver or beneficiary can submit their issuing bank’s SWIFT verbiage for review and approval of the issuing bank, if not approved, the issuing bank’s standard verbiage will be used in SWIFT transmission.

For more information on how to utilize banking instruments such SBLC, contact us via email:Company Information:
Reliance Capital Finance Limited

Address: Room 2401A, 24/F, Great Eagle Centre,
23 Harbour Road, Wan Chai, Hong Kong Asia Country.

🌐 Website: https://reliancecapitalfinancelimited.com
📧 Email: info@reliancecapitalfinancelimited.com
📞 Call/WhatsApp: +852 5916 3019