How to Successfully Close a Standby Letter of Credit Transaction

The standby letter of credit (SBLC) is one of the most widely used credit enhancement tools in global trade and project finance. But securing an SBLC and closing the transaction is not as simple as walking into a bank and requesting one. It requires underwriting, credible documentation, and counterparties that actually transact under ISP98 or UCP600 rules.

1. Understanding What an SBLC Really Is

An SBLC is not “cash in hand.” It is a contingent obligation issued by a bank on behalf of its client, guaranteeing payment to a beneficiary if the client defaults. SBLCs are governed by rules such as ISP98(International Standby Practices) or UCP600(Uniform Customs and Practice for Documentary Credits).

In practice, an SBLC serves as credit support. It backs trade finance lines, leases, project obligations, or performance contracts. A legitimate SBLC is issued only after proper underwriting. Any offer to “buy an SBLC at 30% of face value” is a scam.

2. The Key Parties in an SBLC Transaction

• Applicant: The company requesting the SBLC, usually the borrower or project sponsor.
• Issuing Bank: The bank that underwrites and issues the SBLC.
• Beneficiary: The party receiving the SBLC as assurance of payment.
• Advising or Confirming Bank: The bank authenticating and sometimes adding its own guarantee.
• Underwriters / Advisors: Firms like Financely that prepare, structure, and align clients with banks.

3. The Step-by-Step Process to Close an SBLC

Closing an SBLC deal involves multiple stages. Skipping any of them is why transactions fail. Here is the roadmap:

1. Initial Assessment: Review of client needs, purpose of SBLC, transaction size, and sector. Only post-revenue companies with strong financials usually qualify.
2. Engagement: The client signs an advisory or underwriting mandate with clear retainer fees. This eliminates non-serious requests.
3. Data Room & Documentation: Submission of audited financials, corporate documents, contracts requiring SBLC support, and KYC/AML records.
4. Underwriting: Credit analysis, risk assessment, and presentation to shortlisted banks.
5. Indicative Terms: Bank issues a soft quote (facility size, fees, collateral, covenants).
6. Formal Application: Submission of bank application and applicant’s agreement to conditions.
7. Issuance: SBLC is transmitted via SWIFT MT760 to the beneficiary’s bank, authenticated, and confirmed if required.
8. Utilization: The beneficiary uses the SBLC as collateral, guarantee, or payment support.
9. Repayment & Closure: The applicant repays underlying obligations, and the SBLC expires or is released uncalled.

4. Choosing the Right Bank

Credible SBLCs come from Tier-1 and Tier-2 banks with strong SWIFT networks. We typically arrange issuances from:

• Europe: Deutsche Bank, BNP Paribas
• United States: Citi, JPMorgan
• India: State Bank of India, ICICI
• China: ICBC, Bank of China

The issuing bank is chosen based on the applicant’s jurisdiction, credit standing, and the beneficiary’s acceptance list. Some beneficiaries will only accept SBLCs from specific banks.

5. Documentation Required

Closing an SBLC requires a complete set of documentation. Without this, the file will be rejected by compliance:

• Audited financial statements (3 years preferred)
• Corporate registration and shareholder details
• Board resolution authorizing SBLC application
• Underlying contracts (trade, lease, EPC, project finance)
• Source of repayment and cash flow forecasts
• KYC/AML documents for directors and shareholders

6. Timelines to Expect

A real SBLC transaction does not close overnight. Typical timelines:

• Preliminary assessment and engagement: 1–2 weeks
• Underwriting and term sheet: 2–4 weeks
• Bank application and approval: 2–6 weeks
• Issuance via SWIFT: within 5 business days after conditions are met

7. Common Red Flags and How to Avoid Them

• Anyone offering a “leased SBLC” or “discounted SBLC” is a fraud.
• MT799 “ping” without prior underwriting is meaningless.
• Banks never issue SBLCs against zero collateral with no credit review.
• Unregulated intermediaries promising guarantees are not credible.

8. Our Role in Closing SBLC Transactions

Financely acts as the advisor and underwriter, not the issuing bank. Our role is to structure the transaction, secure credible issuing banks, and manage the process until close and disbursement. Clients pay a retainer for underwriting and a success fee upon issuance.

Without professional underwriting, SBLC requests rarely make it past bank compliance desks. Our credibility with institutions ensures applications are taken seriously.

Frequently Asked Questions

• Can I buy an SBLC? No. You apply through a bank. It is a credit facility, not a product on a shelf.
• Can SBLCs be monetized? Only if a lender accepts them as collateral. There is no fixed market for “monetization.”
• What size SBLC can I get? Typically $10m–$500m depending on credit strength and collateral.
• Are fees refundable if issuance fails? No. Retainer fees cover underwriting work even if a deal does not close.

Disclaimer: This article is for educational purposes only and does not constitute financial, legal, or investment advice. Financely does not issue SBLCs directly. All transactions are subject to underwriting, bank approval, compliance checks, and regulatory oversight. Beware of fraudulent offers. Always verify the issuing bank and instrument authenticity via SWIFT.