Fresh Cut SBLCs Don't Exist. They're A Unicorn.

The Myth of “Fresh Cut SBLC”

If you’ve come across “Fresh Cut SBLC,” know this: it’s a marketing invention. No reputable bank or seasoned trade-finance professional recognizes that term. It signals a lack of understanding of how Standby Letters of Credit truly operate.

You’ll often see these inquiries mention Barclays or HSBC as the preferred issuers. If you believe that “going direct” to a big-name bank is the solution, by all means reach out to them yourself. However, genuine SBLC issuance depends on credit, collateral and structure—not on brand name alone.

Collateral Is Non-Negotiable

Banks will not issue an SBLC without adequate security. Common forms of collateral include:

• Cash or Cash Equivalents: Funds blocked in a secured account.
• Receivables Assignment: Future invoices assigned to the issuing bank.
• Inventory Pledge: Warehouse receipts under third-party control.
• Asset Pledge: Equipment, real estate or marketable securities with clear lien priority.
• Corporate or Sponsor Guarantees: Back-to-back guarantees from a creditworthy parent or investor.

Without these, your application will not proceed. You must raise or secure the necessary collateral before a bank even considers issuing an SBLC.

Key Questions from Guarantors

A bank or guarantor will conduct detailed due diligence. They need clear answers on:

• Purpose: What obligation or contract does the SBLC secure?
• Tenor & Expiry: Duration and draw-trigger events.
• Collateral Valuation: How is it valued, held and monitored?
• Applicant Credit Profile: Financial statements, cash-flow forecasts, ratings.
• Compliance: KYC/AML, sanctions checks and legal opinions.
• Draw Conditions: Exact documentation required for a compliant draw.
• Fees: Arrangement fees, issuance commissions, confirmation and renewal charges.

The Opportunity Cost of “Unsecured” SBLCs

Banks allocate significant capital and liquidity to back an SBLC. That capital could earn returns in:

• Project-finance lending
• Bond underwriting
• Structured trade credit
• Private-equity co-investments

Tying up resources for an SBLC with no collateral or clear structure simply doesn’t make economic sense for the bank.

How Genuine SBLC Transactions Are Structured

A true SBLC issuance follows these steps:

• Underwriting: Credit assessment of applicant, guarantor and collateral.
• Collateral Posting: Applicant pledges security into a blocked account or SPV.
• Document Negotiation: Draft SBLC under ISP98 or URDG758, specifying expiry, amount and draw-conditions.
• Issuance & Confirmation: Issued by the bank, optionally confirmed by a top-tier partner to remove country risk.
• Monitoring: Periodic KYC refresh, collateral valuation checks and covenant compliance.
• Expiry or Draw: Expires unused if obligations are met; upon default, beneficiary draws on compliant documents.

Fee Components

• Arrangement Fee: 0.25–1.0% of SBLC amount, one-time at structuring.
• Issuance Commission: 0.5–3.0% per annum on face amount, billed quarterly or semi-annually.
• Confirmation Fee:+0.25–0.75% p.a. if confirmed by another bank.
• Collateral Management Fee: Custody or administrative fee for blocked account oversight.
• Amendment/Renewal Charges: Flat or percentage fee for tenor extensions or wording changes.