A SBLC (Standby Letter of Credit) is a banking instrument, and it is used mainly to underpin Trade Finance transactions. Its expiry date varies from one trade to another and is a payment of last resort.
A Standby Letter of Credit is a banking instrument. A buyer and the seller from two separate companies will enter into a contract, under instructions from the buyer, their bank will transfer a Standby Letter of Credit to the sellers’ bank, and if the buyer does not honour their financial commitment to the seller, which are stated under the terms of the Standby Letter of Credit, the issuing bank will claim against the Standby Letter of Credit.
The word ‘leased’ in a ‘Leased’ Standby Letter of Credit, is not an official banking term and is a technical inaccuracy, the proper description being Collateral Transfer and it is thought to have originated from a commercial leasing contract that has similar attributes to a Leased Standby Letter of Credit.
When offered a choice of monetising a Standby Letter of Credit or a Bank Guarantee, monetisers will favour a Bank Guarantee as it is non-transferable, whilst the Standby Letter of Credit is a transferable instrument. The LTV, (Loan to Value), for both instruments is exactly the same, however, the exact figure will depend on the contingent liability, of the underlying transaction.
Both the Bank Guarantee, and the Standby Letter of Credit are used as instruments for monetisation, and in this respect the verbiage contained therein is similar and both, therefore, are governed by ICC Uniform Rules for Demand Guarantees, (URDG 760). Therefore, beneficiaries of the Leased Standby Letter of Credit can apply for capital injections, loans, and lines of credit, often alluded to as Credit Guarantee Facilities, from their bankers, utilising the Standby Letter of Credit as security.
To find out more information about Standby Letters of Credit or to apply for monetisation via IntaCapital Swiss, please get in contact with an expert to discuss your requirements. Alternatively, please apply using our Application Enquiry Service to submit your details.
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