Comprehensive Guide to SBLC Monetization

In the constantly changing world of global finance, SBLC monetization has become an essential tool for businesses looking to access immediate liquidity from financial instruments. At General Credit Finance and Development Limited, a Hong Kong-based financial institution that specializes in loans, project finance, trade finance, and the issuance and monetization of SBLCs, we enable businesses worldwide to effectively utilize their financial instruments.

This article explores the concept of SBLC monetization, including its process, benefits, and realworld examples.

What Is an SBLC?

A standby letter of credit (SBLC) is a legal document issued by a bank on behalf of its client, providing a guarantee of its commitment to pay the seller if its client (the buyer) defaults on the agreement. A standby letter of credit helps facilitate international trade between companies that don’t know each other and have different laws and regulations.Click here to read our comprehensive article on standby letters of credit (SBLC).

Key Takeaways

• A Standby Letter of Credit (SBLC) provides reassurance to the other party during a business transaction.

• The SLOC guarantees that a bank will financially back the buyer in the event that they can’t complete their sales agreement.

• SBLCs are commonly used in domestic and international transactions where the parties to a contract do not know each other.

• A standby letter of credit acts as a safety net by ensuring the seller that the bank will make payment for goods or services delivered if the buyer defaults on their payment.

Types of Standby Letter of Credit

1. Financial SBLC: The financial-based SBLC guarantees payment for goods or services, as stipulated in the agreement. For example, if a crude oil company ships oil to a foreign buyer expecting payment within 30 days of shipment, and the buyer fails to make the payment by the due date, the crude oil seller can collect the payment for the delivered goods from the buyer’s bank. Since this arrangement involves credit, the bank will collect the principal amount along with any interest from the buyer.

2. Performance SBLC: A performance-based Standby Letter of Credit (SBLC) guarantees that a project will be completed within the agreed timeline. If the bank’s client fails to complete the project as outlined in the contract, the bank commits to reimbursing the third party involved in the contract a specified amount of money.

Performance SBLCs are commonly used in projects with strict deadlines, such as construction projects. This payment acts as a penalty for any delays in the project’s completion and serves to compensate the customer for the inconvenience caused. It may also be used to hire another contractor to take over the project.

Cost of Standby Letter of Credit (SBLC)

At General Credit Finance and Development Limited, our bank guarantee (BG) and Standby Letter of Credit (SBLC) leasing fee is 4% per year. If the BG or SBLC is needed for more than one year, the contract will include options for rolls and extensions where applicable. If the terms of the contract are fulfilled early, the customer can cancel the BG or SBLC without incurring any additional charges.

Leased Bank Instruments (BG/SBLC) Description:

1. Instrument Type: Fully Cash Backed Bank Guarantee {BG} / Standby Letter of Credit {SBLC}

2. Total Face Value: USD 2Million (Min) to USD 5B (Max)

3. Issuing Bank: Citibank, HSBC Hong Kong, Barclays Bank London or any AAA rated European/American bank.

4. Age: One Year and One Day (with rolls and extensions where applicable)

5. Leasing Price: 4% (+2% broker’s commission where applicable) A 2% commission applies to clients introduced by brokers.

6. Delivery: SWIFT MT-760

7. Payment: MT103 Wire Transfer8. Bank Transmission fee: This varies and depends on the BG/SBLC face value.

9. Hard Copy: Bonded Courier within 7 banking days.

How to Obtain a Standby Letter of Credit

The process of obtaining a standby letter of credit (SBLC) is similar to securing a business loan, but there are some key differences.

Like any business loan, you must demonstrate your creditworthiness to the bank. However, the approval process for an SBLC is much faster, with letters typically being issued within a week after all necessary paperwork has been submitted.

At General Credit Finance and Development Limited (GCFDL), we excel in the issuance, leasing, funding, and monetization of bank instruments. For us, reaching the finish line is what truly matters.

What Is SBLC Monetization?

SBLC monetization is the process of liquidating/converting an SBLC into liquid funds, typically through a financial institution or monetizer. This enables businesses to access much-needed capital for operational, investment, or project financing. It is a low cost, low-risk method of trade finance that converts financial instruments into cash or cash equivalents.

But the Standby Letter of Credit (SBLC) must be issued by a reputable European or American bank, such as Deutsche Bank, Citibank, JP Morgan, HSBC, or Barclays Bank. This is very important because SBLCs from banks that are not rated have little to no value, making them difficult to monetize.

Furthermore, the SBLC must contain the correct wording and verbiage. Whether the SBLC is leased or purchased is not as important as the credibility of the issuing bank and the accuracy of the language/verbiage used. For expert guidance, it’s advisable to consult the trade finance specialists at General Credit Finance and Development Limited.