How Much Does A Standby Letter Of Credit (SBLC) Cost To Issue And Maintain

What A Standby Letter Of Credit Is

A Standby Letter of Credit is an independent bank undertaking to pay on demand against a compliant presentation. The standard rule set is International Standby Practices ISP98. Some beneficiaries request UCP 600 language, but ISP98 aligns more cleanly with standby mechanics. The SBLC is separate from the commercial contract. A draw is triggered by the exact draw statement and any documents named in the instrument text.

Common Types Of SBLC And When Each One Fits

How Much An SBLC Costs To Issue And Maintain

Fee Element	Typical Range Or Practice	Notes
Issuance Commission	0.50% to 3.50% per annum, billed quarterly in advance	Driven by applicant strength, corridor, tenor, and draw mechanics. Higher for weaker profiles or longer maturity.
Confirmation Fee	0.50% to 2.50% per annum	Applies when a confirming bank is added for beneficiary comfort or country risk mitigation.
Fronting Fee	0.10% to 0.30% per annum	When a local bank fronts against a counter-guarantee or risk participation.
Advising And SWIFT	USD 150 to 400 for advising, USD 75 to 200 per SWIFT	Advising bank fees and message charges per event and corridor.
Legal Drafting Or Review	USD 500 to 3,000 plus where bespoke	Complex performance texts and bespoke conditions increase legal time.
Amendment	USD 150 to 350 flat, plus pro rata commission if increased or extended	Each change triggers MT767 handling and bank ops checks.
Minimums	USD 1,000 to 7,500 per instrument per year	Used when face is small or tenor is short and bank minimums apply.
Facility Or Line Fee	0.25% to 1.00% per annum on unutilised limits	If the SBLC sits under a committed issuance facility.

Collateral Requirements And How Banks Think About Them

Collateral depends on the applicant’s financial strength, track record, and country risk. Strong corporates with reliable cash flows can obtain unsecured issuance with covenants and cash management. Mid-market applicants are often asked for 10% to 50% cash margin or liquid collateral. Thinly capitalised applicants may be asked for 100% cash margin, a counter-guarantee from a stronger bank, or additional security such as receivables assignments or charges over deposits. Where the beneficiary, corridor, or sanctions profile raises risk, collateral requirements increase and confirmation may become mandatory.

Underwriting Steps And How Long It Takes

1. KYC And Sanctions. Corporate documents, ownership chart, directors, flows, and purpose. Typical timing is three to ten business days depending on jurisdiction and completeness.
2. Credit Assessment. Financials, bank statements, contract review, and collateral analysis. Typical timing is five to ten business days for a first file.
3. Drafting And Beneficiary Pre-Acceptance. Full ISP98 text with draw statement, expiry, presentation place, and governing law. Beneficiary confirms acceptance in writing. Typical timing is two to five business days.
4. RMA And SWIFT Setup. Banks confirm messaging permissions and routing. Typical timing is one to three business days.
5. Issuance. Once conditions precedent and margin are in place, issuance is typically same-day or next business day.

Clean files often close in seven to fifteen business days. Cross-border fronting and complex performance standbys can take ten to twenty five business days due to local counsel and platform steps.

Issuance Guidelines That Prevent Disputes

• Use ISP98 unless the beneficiary mandates UCP 600. Demand guarantees under URDG 758 can fit when local practice prefers guarantees.
• State applicant, beneficiary, face amount, currency, and clear expiry. For evergreen, define automatic extension with a ninety or sixty day non-renewal notice.
• Define place of presentation, whether originals are required, and the number of originals. If electronic presentation is allowed, the rules must be explicit.
• Write an objective draw statement. Avoid subjective tests and references to external contracts that the bank cannot verify.
• Clarify transferability, assignment of proceeds, and governing law. Transferability is uncommon for standbys and should be avoided unless essential.

How An SBLC Is Delivered And Amended

Maintenance, Renewals, And Ongoing Costs

• Quarterly commissions continue until expiry or cancellation. Reductions are typically pro rated if face amount is reduced.
• Extensions and increases trigger incremental commission and amendment charges.
• Annual reviews for multi-year programs include financial updates and compliance refresh.
• If a confirming bank is on risk, its renewal fee applies at each extension.

How To Raise Capital If Collateral Is Not Sufficient

Documents We Need To Start And Speed

• Underlying contract or tender with scope, milestones, and governing law.
• Beneficiary wording or acceptance criteria, if provided.
• Corporate documents, ownership chart, latest financials, and twelve months of bank statements.
• Draft draw statement, expiry date, presentation place, and confirmation preference.

Frequently Asked Questions

Disclaimer: This article is for general information only and is not legal advice. It is not a commitment to lend, confirm, or issue any instrument. Any SBLC is subject to KYC and AML controls, sanctions screening, credit approval, definitive documentation, and beneficiary acceptance of the final text.