SBLC Funding Process

What does the Standby Letter of Credit (SBLC) funding process entail? It involves SBLC financing or monetization, which means obtaining loans and lines of credit by using a Standby Letter of Credit as collateral.

It’s important to note that a Standby Letter of Credit is a significant financial instrument crucial to global trade, serving as a payment of last resort. However, when used for international and domestic trade, it is not typically “leased.”

For a company to secure a loan or line of credit, they need to “lease” a Standby Letter of Credit. This can be done through an SBLC provider, as outlined below.

Explanation of the ‘Leased’ Standby Letter of Credit or SBLC ‘Lease’ Process: “Leasing” a Standby Letter of Credit is similar to “leasing” a Demand Bank Guarantee, the only guarantee that can be monetized. Both instruments are used for monetization purposes and are governed by ICC Uniform Rules for Demand Guarantees (URDG 758). They are payable on first demand, and the wording within the format is clear, precise, and specific.

Who is an SBLC Provider? An SBLC Provider “leases” Standby Letters of Credit (and Demand Bank Guarantees), lending part of their balance sheet to the “leased” bank instrument market. Companies seeking to “lease” a Standby Letter of Credit sign a contract with an SBLC provider, known as a Collateral Transfer Agreement. The two parties involved are referred to as The Provider and the Beneficiary.

After signing the Collateral Transfer Agreement, the SBLC Provider instructs their bank to transmit the Standby Letter of Credit via SWIFT message to the beneficiary’s bank for credit to their account.

SBLC Monetization: Upon receiving the Standby Letter of Credit, the beneficiary takes ownership and can use it as security to raise a loan or line of credit, often termed as Credit Guarantee Facilities. Confidently approaching their bank with this instrument as security, the beneficiary is likely to have their application for Credit Guarantee Facilities approved.

In cases where the bank rejects the application, third-party lenders in Europe, particularly with the market leader in Geneva, Switzerland, can provide lending against a “Leased” Standby Letter of Credit.

For companies interested in “leasing” a banking instrument, reaching out through the online inquiry service is encouraged, where a team member will respond promptly.