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Most standby letters of credit are not delayed by the bank. They are delayed by the applicant. The wording was never agreed with the beneficiary, the credit line was not in place, the KYC file was incomplete, or the collateral was still being discussed when the counterparty expected the MT760.
This checklist walks through every step a company should complete before and after asking its bank to issue an SBLC, in the order banks actually work. Use it to plan the timeline, prepare the file once, and avoid sending the same documents three times.
A standby letter of credit is a bank's irrevocable undertaking to pay the beneficiary if the applicant fails to perform, against presentation of the documents the standby specifies. It is a backstop, not a payment method. In a well-run transaction it is never drawn.
Two features matter for issuance. First, the standby is independent. The bank pays against a complying presentation, not against an investigation of the underlying contract. Second, it is irrevocable, so neither you nor the bank can cancel it without the beneficiary's consent. Both principles are set out in the International Standby Practices (ISP98), the rule set most standbys are issued under. Some are issued under UCP 600 or under URDG 758 for demand guarantees instead.
Since SWIFT Standards Release 2021, which went live in November 2021, standbys must be issued with the MT760 message rather than the MT700 used for documentary credits. The MT760 now carries dedicated structured fields for the parties, amount and expiry, so the data you give your bank lands in specific fields rather than one long narrative block. Trade Finance Global has a clear summary of the change.
The diagram below shows the sequence most banks follow. The two steps that cause the longest delays are the draft approval loop with the beneficiary and the credit approval inside the bank, so start both early.
Start with the contract, not the bank. The standby exists because a counterparty asked for it, usually in a supply contract, a lease, a construction contract or a credit agreement. Pull the exact clause and confirm the amount, currency, beneficiary entity, the obligation being secured and the deadline for delivery of the instrument.
Check the issuer requirement. Many beneficiaries require a minimum credit rating for the issuing bank, or confirmation by a bank they accept. If your own bank does not meet that requirement, you will need a confirming bank, and that adds a second credit approval and a second fee. Find this out on day one.
Supports completion of a contract, such as delivery of goods or construction works. Common in EPC and supply agreements.
Supports a payment obligation, such as repayment of a loan or payment for goods on open account. Often used as credit enhancement for a borrower.
Protects a buyer who pays a deposit up front. The amount often reduces as deliveries are made.
Issued to a local bank in the beneficiary's country, which then issues its own undertaking. Common where local law requires a domestic issuer.
The single most common cause of delay is a bank issuing a standby the beneficiary then rejects. Agree a draft text with the beneficiary first, then give your bank that agreed draft with the application.
| Wording item | What to settle with the beneficiary |
|---|---|
| Governing rules | ISP98 for most standbys. State it expressly, for example "subject to ISP98". |
| Amount and currency | Maximum amount, currency, and whether it reduces over time. |
| Expiry date and place | A fixed date, and where presentations must be made. Avoid open-ended expiry, which most banks will not accept. |
| Auto-extension | Whether the standby renews automatically, the notice period for non-renewal, and a final expiry date. |
| Draw conditions | The exact documents required for a demand, usually a signed statement of default. Keep it simple and objective. |
| Partial and multiple drawings | Whether the beneficiary may draw in parts or only once. |
| Governing law and jurisdiction | Which courts apply if there is a dispute. |
| Confirmation | Whether a confirming bank is required, and who pays for it. |
Watch the draw conditions. Subjective wording, such as a requirement that the beneficiary "prove" a loss, is usually rejected by banks or creates disputes later. Standbys work because presentations can be checked against documents alone, the same discipline that applies to documentary credit presentations under UCP 600.
For the bank, issuing a standby is a credit decision. If the beneficiary draws, the bank pays and then looks to you for reimbursement. The bank will therefore assess you as it would a borrower.
Facility line. Companies that issue standbys regularly hold a contingent facility, sometimes called a guarantee or LC line, sized for expected issuance. A first-time applicant without a line will go through full credit approval.
Collateral. The bank may issue against an unsecured line, against a cash margin held in a blocked account, against other security such as receivables or a parent guarantee, or a combination. The weaker the credit, the higher the cash cover requested. Ask early, because collateral negotiation can take longer than the credit memo.
The credit file. Banks approve faster when the request arrives as a complete package with the transaction explained. A lender-ready credit package, with a credit memo, financial analysis and KYC file assembled in advance, removes most of the back and forth.
Requirements vary by bank and jurisdiction, but this is the core file you should expect to provide.
| Document | Why the bank needs it |
|---|---|
| Underlying contract | Shows the commercial purpose and the obligation the standby secures. |
| Agreed draft wording | Lets the bank review the text and confirm it can issue on those terms. |
| Audited financial statements | Usually two to three years, plus recent management accounts. |
| Corporate documents | Certificate of incorporation, constitutional documents, register of directors and shareholders. |
| Board resolution | Authorises the company to apply for the standby and sign the reimbursement agreement. |
| KYC on owners and signatories | Identification of ultimate beneficial owners, directors and authorised signatories. |
| Beneficiary details | Full legal name, address and the beneficiary's bank, which the issuer screens against sanctions lists. |
| Collateral documents | Cash margin instructions, security agreements or parent guarantee, as agreed. |
Sign the application and reimbursement agreement. The application instructs the bank on the exact terms. The reimbursement agreement sets out your obligation to repay the bank if the standby is drawn, along with fees and security. Read the fee schedule carefully. Banks typically charge an issuance commission based on amount and tenor, plus SWIFT, amendment and, where relevant, confirmation charges.
Issuance by SWIFT. The issuing bank sends the MT760 to the beneficiary's advising bank over the SWIFT network. The advising bank authenticates the message and passes it to the beneficiary. A standby that arrives this way can be verified bank to bank, which is why beneficiaries ask for it.
Confirm receipt. Ask the beneficiary to confirm in writing that its bank has received and authenticated the standby. This closes the delivery obligation under your contract and avoids later disputes about whether the instrument arrived.
Diary the dates. Record the expiry date, any auto-extension notice deadline and any reduction dates. Missing a non-renewal notice can leave a standby, and its fees, running for another year.
Manage amendments properly. Changes to amount, expiry or terms are made with an MT767 amendment and generally require the beneficiary's consent, because the standby is irrevocable.
Plan the release. When the underlying obligation is performed, request a written release from the beneficiary and ask your bank to cancel the standby and return any cash margin. Do not assume the instrument lapses quietly.
Financely prepares the credit file, reviews the draft wording against ISP98, and works with your bank and the beneficiary so the standby is issued once, on terms both sides accept.
If your bank has already asked for documents you do not have ready, send us the request list. We will tell you what is missing and what it will take to close the gap.
With an existing facility line and agreed wording, issuance can be quick. For a first-time applicant, credit approval and collateral negotiation usually take longest. The fastest route is to agree the wording with the beneficiary and submit a complete credit file at the same time.
Most standbys are issued subject to ISP98, which was written specifically for standby letters of credit. Some are issued under UCP 600, and demand guarantees commonly use URDG 758. The beneficiary will usually specify which it accepts.
It depends on your credit standing. Strong borrowers may issue against an unsecured facility line. Others are asked for full or partial cash cover, or other security such as a parent guarantee.
Since SWIFT Standards Release 2021, standbys are issued with the MT760 message and amended with the MT767. The MT700 is used for documentary credits only.
Only with the beneficiary's consent or as the standby itself allows, because it is irrevocable. In practice, the beneficiary returns the original or confirms the release in writing, and the issuing bank then cancels it.
This article is general information only and is not legal, tax or investment advice. Financely is an advisory and arranging firm. It is not a bank, lender, issuer of standby letters of credit or broker-dealer. Any issuance or financing remains subject to the issuing bank's underwriting, due diligence, credit approval, documentation and conditions precedent. No outcome or timeline is guaranteed.
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