Standby Letter of Credit (SBLC) with Prime Banks for Business (2024)

FAQs

How much does a SBLc cost? ›

The primary cost associated with an SBLC is the fee charged by the bank for issuing it. This fee typically ranges from 1% to 10% per year of the SBLC's face value, depending on the bank's assessment of risk. The riskier the client's business proposition or the lower their creditworthiness, the higher the fee.

More often than not, the bank will issue the Standby Letter of Credit (SBLC) within 48 hours of release. Once issued, a copy of the SBLC will be emailed to you as it is transmitted by a MT760 SWIFT message to the beneficiary, including the reference number of the SBLC.

An SBLC acts as a safety net for the payment of a shipment of physical goods or completed service to the seller, in the event something unforeseen prevents the buyer from making the scheduled payments to the seller.

Beneficiaries need not always insist that a standby letter of credit be issued or confirmed by a local bank. The requirement that a local bank issue or confirm a standby letter of credit is not uncommon.

1-6-6- Disadvantages of the standby letter of credit

Low protection in the event of default. Time constraints. Utilized for a shorter duration. Less frequently used as the documentary credit, thus it can be prone to errors.

A Standby Letter of Credit is different from a Letter of Credit. An SBLC is paid when called on after conditions have not been fulfilled. However, a Letter of Credit is the guarantee of payment when certain specifications are met and documents received from the selling party.

Documentation Requirements

Business Financial Statements: Provide recent financial statements, including balance sheets and income statements, to demonstrate financial health. Trade Contract or Agreement: Submit a copy of the trade agreement or contract necessitating the SBLC, highlighting terms and obligations.

A red clause letter of credit is a form of legal document in payment methods that allows an importer to pay the exporter in advance. Since the importer is confident that the exporter will deliver goods as per schedule, the importer offers to make the payment in advance.

A Standby Letter of Credit (SBLC) and Bank Guarantee (BG) is a payment guarantee generally issued by the issuing bank on behalf of an applicant securing payment to the beneficiary, If the buyer fails to fulfil a contractual commitment the issuing bank will release payment to the seller.

What is the process of SBLC? ›

The two parties are referred to as The Provider and the Beneficiary. Once the Collateral Transfer Agreement is signed the SBLC Provider will instruct their bank to transmit the Standby Letter of Credit. Their bank will SWIFT message the Standby Letter of Credit to the beneficiary's bank for credit to their account.

Purpose: SBLCs primarily serve as a form of collateral for Sight LCs, which are used to facilitate international trade transactions. By providing an SBLC as collateral, the applicant assures the beneficiary that they have sufficient funds or creditworthiness to fulfill their obligations under the Sight LC.

Standby Letters of Credit are similar to Demand Guarantees in that they provide assurances in the event of non-payment, non-performance, or non- delivery. In some countries the local market practice is to issue or receive Standby Letters of Credit as opposed to Demand Guarantees.

There are two main types of standby letters of credit: A financial SLOC guarantees payment for goods or services as specified by an agreement. An oil refining company, for example, might arrange for such a letter to reassure a seller of crude oil that it can pay for a huge delivery of crude oil.

A: Trading SBLC involves a process where the buyer or beneficiary of the SBLC sells or assigns their rights to the SBLC to another party, typically for a fee or a discount. The new party becomes the new beneficiary and can utilize the SBLC to secure their own trade transactions, obtain financing, or mitigate risks.

SBLC leasing is a process in which a client leases an SBLC from a provider for a specific period. The provider is usually a financial institution with a good credit rating that can issue the SBLC. The client pays a fee for the use of the SBLC, which is generally a percentage of the instrument's face value.

A buyer will typically pay anywhere between 0.75% and 1.5% of the transaction's value, depending on the locations of the issuing banks.

An SBLC is a financial instrument that is issued by a bank and guarantees payment to a beneficiary if the party that obtained the SBLC fails to fulfill a specific obligation. To monetize an SBLC, a borrower would typically need to find a lender who is willing to accept the SBLC as collateral for a loan.