Standby Letter of Credit Definition, Issuance, Notification and uses

Another prominent payment technique used in international trade is the Standby Letter of Credit. What is a Standby Letter of Credit (SBLC)? How is it different from a Documentary Letter of Credit? How do issuance and notification of a Standby Letter of Credit work? … Well This article provides the answers to these questions.

What is a Standby Letter of Credit (SBLC)?
The Standby Letter of Credit (SBLC) is a guarantee issued by the importer’s bank, in favor of the exporter, for an amount agreed at the signing of the commercial contract. It provides a guarantee to the exporter that, if due to any circumstances, the importer is unable to pay, then the bank
will make the payment.

Grand City Investment Limited
Email: [email protected]
Website: https://grandcityinvestment.com

1. Another prominent payment technique used in international trade
is the Standby Letter of Credit. What is a Standby Letter of
Credit (SBLC)? How is it different from a Documentary
Letter of Credit? How do issuance and notification of a
Standby Letter of Credit work? … Well This article provides
the answers to these questions.
What is a Standby Letter of Credit (SBLC)?
The Standby Letter of Credit (SBLC) is a guarantee issued by the
importer’s bank, in favor of the exporter, for an amount agreed at
the signing of the commercial contract. It provides a guarantee to
the exporter that, if due to any circumstances, the importer is
unable to pay, then the bank will make the payment.
We already know what a Letter of Credit is, from the above explanation. It is another naming for the
documentary credit that was analyzed in the preceding articles. The key to understand this payment technique
is therefore the word Standby. In the Cambridge dictionary, it reads about that word:
• Something that is always ready for use, especially if a regular one fails.
• When a person or a thing is on standby, they are ready to be used if necessary

2. A Standby Letter of Credit is therefore a Letter of Credit that is ready to be used if required. Now let’s
consider its definition.
The Standby Letter of Credit is used as an insurance against the risk of non-payment. It is intended for
preventing contracts from going unfulfilled in case the importer declares bankruptcy or is unable to pay for
goods or services provided. Like an insurance, a Standby Letter of Credit is not put into play when everything
goes well. However when a bank issues a SBLC on the request of a business, it proves that business’ credit
quality and repayment abilities to some extent.
The Standby Letter of Credit was created in the United States to circumvent US banking legislation that
prohibits banks from issuing guarantees and surety bonds. Only insurance companies or similar companies are
legally allowed to issue them in the USA. The US banking system has circumvented this prohibition by issuing
guarantees requiring the submission of certain documents to make them work.
There are two types of Standby Letters of Credit: Performance SBLC and Financial SBLC.
• A Performance Standby Letter of Credit is issued to ensure that nonfinancial contractual obligations
are performed in a timely and satisfactory manner. These obligations can be related to quality of work,
amount of work, delivery time, asn. In case they are not met, the bank will pay the beneficiary in full.
• A Financial Standby Letter of Credit, on the other hand, is issued to ensure that financial contractual
obligations are fulfilled. That means the importer pays on time provided he has received all the goods
and/or services from the exporter, the beneficiary of the SBLC. But a Financial SBLC can also be in
favor of the exporter’s bank. Standby Letters of Credit are financial most of the time.
The standby letter of credit is often preferred over a documentary credit because it presents some advantages
for both parties:
• The administrative formality is simple and not very constraining
• It allows fast and direct shipping of documents to the buyer without going through the banks
• It is adapted to all incoterms including those of the D group related to the deliveries. We will get back
to Incoterms in the future.
• If it is not enforced, its cost is less than that of a Documentary Credit
• It can come to fruition in a few hours
• etc.
We will now consider how the issuance and notification of the standby letter
of credit work. The diagram below shows the steps involved in issuing and
notifying a Standby Letter of Credit. The parties involved in a SBLC are the
same as the ones involved in a documentary credit. I am sure you recognize
the Four Corner Model :-), our main tool to analyze payments instruments and
techniques.

3. Standby Letter of Credit, Standby Letter of Credit provider,
Standby Letter of Credit meaning, Standby Letter of Credit types
Issuing and Notification of a Standby Letter of Credit
We consider each step in the following:
1. The signature of the contract between the exporter and
the importer
This step is very important for the success of the whole operation. The two
parties agree the terms of the transaction in a contract: the goods, transport
and shipping arrangements, delivery times, documents to be provided by the
buyer, the payment guarantee (In this case the standby letter of credit), the
payment instrument, what to do in case of dispute (Non payment, problems
on the goods, etc.)..
Companies are strongly advised to seek the support of
international trade professionals to avoid mistakes. Even if
forms exist, it is not always easy to fill them out and the
omission of an important point can put the whole operation in
question.

4. Furthermore, it is also strongly recommended for both parties
to get in touch with their banks during this phase and not after
signing the contract. Banks have experience in international
trade and can provide valuable advice for the smooth execution
of the transaction in legal, logistical and financial terms.
2. The standby letter of credit request
The importer asks his bank to open a standby letter of credit in
favor of the exporter. He hands out a letter of order to the bank
where he precisely states the terms of the SBLC. It must,
among other things, list the documents to be submitted by the
exporter in the event of the SBLC being brought into play. The
bank is very strict with the formalism of the demand. If the
SBLC can refer to the contract between importer and exporter,
it is important to note that under no circumstances is the bank
bound by the terms of the contract.
After getting the request, the bank carries out a thorough
examination of his client situation. The bank may consider that
the risk is too high and reject the request if it thinks that its
client will not be able to pay in case the SBLC is put into play.
Sometimes the bank may require his client to block some or all
of the funds or to provide collateral in other forms. If the
request is accepted, the bank informs the client by mail or
other means.
3. The issuance of the standby letter of credit

5. The importer’s bank issues the standby letter of credit in
accordance with the request received from his client. The issuance
of a SBLC is usually done by transmission of a SWIFT MT 700
message if both banks are connected to the SWIFT networks.
Otherwise, it is done by encrypted telex or by mailing a
standardized form of the International Chamber of Commerce
previously filled in. The sending of the MT 700 is the preferred
solution because of the security and speed offered by
the SWIFT network.
4. Notification of the standby letter of credit confirmed or not
The correspondent of the importer’s bank after getting the SBLC may add its confirmation, that is to say
commit, as the issuing bank, to make the payment under the conditions defined in the SBLC. To keep things
simple, we consider that the exporter’s bank is the correspondent of the importer’s bank. But it’s not always
the case.
In any case (confirmation of the SBLC or not), the correspondent notifies the exporter that a standby letter of
credit is opened in his favor. He transmits the original in paper format.
As stated above, the SBLC is not intended to be used if everything works as expected. It can happen though,
that the payer is unable to fulfill his obligations. In that case, what does the beneficiary do? In the next article,
we will see how a standby letter of credit is brought into play.
Standby Letter of Credit {SBLC}
Description
1. Instrument: Cash Backed Standby Letter of Credit {SBLC}
2. Total Face Value: To be decided by the parties of the contract.
3. Issuing Bank: HSBC Hong Kong, Barclays Bank London, Citibank New York, Deutsche Bank Germany or
any prime bank of choice.
4. Age: One Year and One Day (with rolls and extensions where applicable)
5. Leasing Price: 4%
6. Delivery: SWIFT MT-760
7. Payment: MT103 Swift Wire Transfer
8. Hard Copy: Bank Bonded Courier within 7 banking days.

6. SAMPLE SWIFT MT-760 FROM ISSUING
BANK TO RECEIVER BANK
(Text may vary in substance but the essential undertaking must be maintained)
FROM
BANK NAME:
BANK ADDRESS:
BANK TEL:
BANK FAX:
BANK OFFICER NAME :
SWIFT CODE:
ACCOUNT NAME:
ACCOUNT NO:
TO
BANK NAME:
BANK ADDRESS:
BANK TEL / FAX:
BANK OFFICER NAME :
SWIFT CODE:
ACCOUNT NAME :
ACCOUNT NO:
TRANSACTION CODE :
BG/SBLC NO:
CURRENCY:
AMOUNT:
ISSUING DATE:
MATURITY DATE:
FOR THE VALUE RECEIVED, WE NAME & ADDRESS OF BG /SBL C
ISSUING BANK&XX. HEREBY IRREVOCABLY AND UNCONDITIONALLY ,

7. WITHOUT PROTEST OR NOTIFICATION PROMISE AND GUARANTEE T O
PAY ON TIME, IN FULL AND WITHOUT DELAY, AGAINST THIS BG/SBLC I N
FAVOUR OF XXCLIENTS NAMEXXX, THE BEARER OR HOLDER THEREOF ,
AT MATURITY THE OF 00,000,000.00 (AMOUNT IN WORD) IN THE LAWFU L
CURRENCY OF XXX THE UNITED STATES OF AMERICA OR EUROPEA N
UNION XXX.
SUCH PAYMENT WILL BE UPON PRESENTATION AND
SURRENDER OF
THIS BG/SBLC AT THE OFFICE OF XX&;NAME OF BG/SBLC
ISSUING
BANK&;XX WITHOUT SETOFF AND FREE AND CLEAR OF
ANY
DEDUCTIONS, CHARGES, FEE OR WITHHOLDING OF ANY
NATURE NOW
OR HEREAFTER IMPOSED, LEVIED, COLLECTED,
WITHHELD OR
ASSESSED BY THE GOVERNMENT OF THE ISSUING OR
PAYING BANK OR
ANY POLITICAL SUBDIVISION OR AUTHORITY T HEREOF OR
THEREIN.
THIS BG/SBLC SHALL BE GOVERNED AND
BE CONSTRUED IN
ACCORDANCE WITH THE UNIFORM RULES
FOR DEMAND GUARANTE E
(URDG), AS SET FORTH BY THE
INTERNATIONAL CHAMBER O F

8. COMMERCE, PARIS, FRANCE ICC
PUBLICATION #600.
THIS BG/SBLC IS TRANSFERABLE, ASSIGNABLE AND
DIVISIBLE WITHOUT
PRESENTATION TO US.
FOR AND ON BEHALF OF:
XXX ISSUING BANK XXX
XXX ISSUING BANK ADDRESS XX X
BANK OFFICER
1 BANK
OFFICER 2
TITLE
(PIN)
TITLE (PIN)
Security Provided By SBLC
By making a third-party bank responsible for payment, the beneficiary becomes more confident that she’ll get
paid. Using an export transaction as an example, there are numerous reasons why the buyer might not pay:
• The buyer has a cash-flow crunch and is waiting on payment from his own customers.
• The buyer goes out of business.
• The buyer’s assets get frozen due to political instability or unrest.
• The buyer is unhappy with the seller.
• The buyer is dishonest.
A bank is financially more stable than most buyers, and the bank
does not concern itself with disputes between buyers and sellers.
Instead, the buyer and seller agree to certain conditions that
trigger payment, and the bank follows directions if those events
occur. An SBLC must be paid as long as the beneficiary meets the
letter’s requirements and the bank is still in business. If the
beneficiary is worried about the issuing bank’s financial stability,

9. she can request a confirmed letter of credit. In that case, a bank
that the beneficiary trusts guarantees the payment on behalf of
another, less-trustworthy bank.
SBLCs Vs. Other Letters of Credit
An SBLC is similar to a standard letter of credit: A bank promises to pay a beneficiary as long as the
beneficiary provides documents and meets the requirements of the letter of credit. Still, there are key
differences:
• Backup plan: An SBLC is a safety net. Like most safety nets, the goal is to avoid using it. When
somebody gets paid with an SBLC, it means something went wrong. With a standard letter of credit,
on the other hand, everybody involved hopes and expects that payment will occur. For example, those
letters pay when an exporter successfully delivers a shipment to an importer.
• Performance aspect: SBLCs also are unique because they can include a performance component — or
negative performance, if you prefer. If a service is not performed, the beneficiary gets paid.
• In-country: SBLCs are used frequently for domestic transactions. Those might include
everything from building projects to receiving electricity services. Commercial letters of credit are
more common in international trade.


Who is a Standby Letter of Credit Provider?

10. A Standby Letter of Credit Provider is a bank or other financial
services provider like Grand City Investment Limited
(https://grandcityinvestment.com) that provides Standby Letter
of Credit Provider (SBLC MT760) and other bank financial
instruments to its customers.
StandBy Letter of Credit {SBLC} Description
1. Instrument: Cash Backed StandBy Letter of Credit {SBLC}
2. Total Face Value: Eur/USD 1Million (Min) to Eur/USD 5 Billion
(Max)
3. Issuing Bank: HSBC London/Hong Kong, Barclays Bank London, Citibank New York, Deutsch Bank
Germany or any AAA Rated Bank.
4. Age: One Year and One Day (with rolls and extensions where applicable)
5. Leasing Price: 4% of Face Value plus 2% brokers commission (Applicable only if there are brokers in the
transaction)
6. Delivery: SWIFT MT-760
7. Payment: MT103 Swift Wire Transfer
8. Hard Copy: Bank Bonded Courier within 7 banking days.
Our bank instrument can be engaged in PPP Trading, Trade Finance, Import & Export Transactions,
Discounting and Monetization, signature project (s) such as Aviation, Agriculture, Petroleum,
Telecommunication, construction of Dams, Bridges, Real Estate and all kinds of projects.
As leading sblc providers, we deliver with time and precision as set
forth in the deed of agreement (DOA). Our bank guarantee
and Standby Letters of Credit terms and Conditions are
reasonable, below is our instrument description.
Once the transaction is in progress, we ensure we keep you posted on the progress of your paper. Instead of
stressing yourself out looking for a financial instrument or company why not let professionals like us deliver
financial instruments to you within the time frame required by you.
OUR SERVICES ARE:
Loans: (Non Recourse Loans, Business Loans, Secured Loans, Unsecured Loans, International Project
Financing)
Purchase Bank Instruments (Bank Guarantees and Standby Letter of Credit)
Lease Bank Instruments (BG, SBLC, DLC, Letters of Credit)
Letters of Credit (DLC, L/C, Usance LC)
Investments and Wealth Management

11. Insurance Underwriting Services
PPP and Trading Platforms
Corporate Finance
BROKER INQUIRIES ARE WELCOMED AND APPRECIATED: Our brokers receive 2% commission
for referral. Daisy Chains of Brokers, Scammers & Time Wasters Will Not Be Entertained. We assist Clients
and brokers in their attempt to secure funding by working on their funding requests that may require
innovative financing.
We would welcome the chance to earn your trust and deliver you the best financial service in the industry.
Have a look at our portfolio here: https://grandcityinvestment.com/portfolio/
Contact us today to know how a Leased Standby Letter of Credit mt760 from barclays bank, hsbc bank, Chase
Bank, Standard Chartered Bank or Bank of America can help you conclude worthy deals with your suppliers
and contractors.
Email: [email protected]
Website: https://grandcityinvestment.com
In our next article, we will talk about the differences between standby letter of credit and bank guarantee. If
you have any questions feel free to contact us