SBLC vs DLC: Which Letter of Credit Is Right for Your Deal?

SBLC vs DLC | Which Letter of Credit Fits Your Deal

SBLC vs DLC: Which Letter of Credit Is Right for Your Deal

Letters of credit solve different problems. A Documentary Letter of Credit handles payment against documents. A Standby Letter of Credit is a contingency backstop for default. Pick the one that matches your trigger, risk, and cash flow needs.

Snapshot: DLC pays on compliant presentation under UCP 600. SBLC pays only if the applicant fails to perform, typically under ISP98. DLC is a primary payment instrument for trade in goods. SBLC is a guarantee style instrument for performance or repayment risk. SWIFT MT700 for DLC. SWIFT MT760 for SBLC.

What Is a Documentary Letter of Credit (DLC)

A DLC is a bank undertaking to pay the seller when the seller presents documents that match the credit terms. Typical documents include bill of lading, commercial invoice, and inspection or quality certificates. DLCs are widely used for shipments where the seller wants bank backed payment once goods are dispatched and evidence is provided.

What Is a Standby Letter of Credit (SBLC)

An SBLC functions as a safety net. It is called only if the applicant fails to pay or perform. Common uses include performance guarantees, advance payment guarantees, rent or lease security, and credit enhancement for private lending. The beneficiary draws by presenting a demand and any required supporting statements defined in the standby wording.

Rule Sets and SWIFT Messages

  • DLC: Usually subject to UCP 600. Issued and advised via SWIFT MT700. Amendments via MT707. Confirmation is optional.
  • SBLC: Usually subject to ISP98. Can also be issued under UCP 600 if agreed. Issued via SWIFT MT760. Amendments via MT767.

DLC vs SBLC: Key Differences

Feature Documentary LC (DLC) Standby LC (SBLC)
Purpose Primary payment instrument for trade in goods Contingent guarantee for payment or performance
Trigger Complying presentation of shipping documents Demand on default with required statements
Typical Users Importers and exporters of goods Project sponsors, developers, service contractors, private borrowers
Rule Set UCP 600 ISP98 by default, or UCP 600 if agreed
SWIFT Message MT700 issue, MT707 amendment MT760 issue, MT767 amendment
Bank Role Facilitates payment flow on documents Acts as guarantor for defined obligations
Cash Flow Timing On sight or at usance maturity after compliance Only on default or non performance as per terms
Common Add ons Confirmation, discounting, avalisation on drafts Assignment of proceeds, counter standby, fronting

When to Use a DLC

  • Cross border sale of goods where the seller wants bank backed payment against documents
  • First time counterparties that need structure and clarity on terms
  • Shipments where discounting or confirmation may improve cash flow or risk

When to Use an SBLC

  • Performance or payment guarantees for construction, services, or lease obligations
  • Advance payment protection for deposits and milestone schedules
  • Private credit deals where a standby improves execution for the lender

Can You Use Both in One Deal

Yes. A DLC can govern payment for goods while an SBLC covers performance or repayment obligations. Hybrid setups are common in complex projects and long supply chains.

Practical Notes

  • Drafting: Define terms precisely. Ambiguity creates disputes and delays.
  • Banks: The rating and jurisdiction of issuing and confirming banks affect pricing and acceptance.
  • Timelines: Build in lead time for KYC, sanctions checks, and any confirmation or fronting.
  • Costs: Expect issuance fees, confirmation fees for DLCs, and annual standby fees for SBLCs. Discount margins apply if you accelerate cash.

Not Sure Which LC Fits Your Transaction

Share your draft terms and counterparty details. We will recommend DLC, SBLC, or a hybrid, with pricing ranges and a closing plan.

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Financely provides advisory and placement support through regulated partners. We do not solicit or place securities where prohibited. All engagements are subject to KYC, AML, and sanctions screening. Terms depend on counterparty risk, bank appetite, and documentation quality.

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