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How an SBLC Provider Offers SBLC to a Business

How an SBLC Provider Offers an SBLC to a Business

A genuine Standby Letter of Credit (SBLC) provider follows a structured financial and compliance process. Unlike brokers or unlicensed operators, real SBLC issuers are regulated financial institutions that issue SBLCs only after careful evaluation of the client’s creditworthiness, collateral, and business purpose.

Step-by-Step Process: How an SBLC Is Offered to a Business

1. Initial Inquiry

The client approaches the SBLC provider with details such as:

Required SBLC amount
Purpose (trade, contract, monetization, tender guarantee)
Tenor (usually 1 year + 1 day)
Beneficiary details

        Example: A construction company needs a $5M SBLC to secure a cement supply contract.
    

2. KYC & Document Collection

The provider collects the required compliance documents:

Certificate of Incorporation
Director IDs / Passport copies
Business license
Company address verification
Financial statements (2–3 years)
Purpose explanation letter

3. AML, Sanctions & Background Screening

The provider screens the client in global databases such as OFAC, EU Sanctions, UN Lists, and Interpol.

        Example: If any director appears on AML watchlists, the application is rejected immediately.
    

4. Financial Strength & Collateral Assessment

An SBLC is a guarantee of payment, so the issuer checks:

Client's credit ranking
Net worth & liquidity
Type and value of collateral
Risk exposure tolerance

A bank never issues an SBLC without collateral.

5. Issuing a Term Sheet

Once preliminary approvals are complete, the provider issues a Term Sheet containing:

SBLC face value
Issuance fee (6–12%)
Collateral requirements
SWIFT types (MT799/MT760)
Timeframes
Governing law

6. Signing of DOA (Deed of Agreement)

The DOA formalizes:

Fee structure
SWIFT process
Both parties’ responsibilities
Jurisdiction
Collateral pledge terms

7. Collateral / Margin Deposit

Valid forms of collateral include:

Cash margin
Fixed deposits
Treasury bills
Real estate lien
Corporate assets

8. Optional MT799 Pre-Advice

Some banks send an MT799 before the actual SBLC to confirm readiness and funding capability.

9. SBLC Issuance via SWIFT MT760

The bank sends the official SBLC through SWIFT MT760 to the beneficiary bank. The receiving bank validates and confirms it.

10. SBLC Delivered & Active

The SBLC can now be used for:

Trade financing
Supply contract guarantees
Performance bond substitutes
Monetization (20–50% LTV)

Parameters to Check Before Accepting a Client's SBLC Application

Before issuing an SBLC, the provider must evaluate the client through detailed legal, financial, compliance, and risk frameworks. These parameters prevent fraud, protect the bank, and ensure the SBLC is issued responsibly.

A. Legal & Compliance Checks

1. Identity Verification

Company registration authenticity
Director background check
Real address verification

2. AML/Sanctions Screening

OFAC database
UN Sanctions List
EU Sanction Frameworks
Interpol notices

B. Financial Capability Checks

3. Corporate Financials

Profitability
Debt load
Cash flow
Balance sheet health

4. Net Worth vs SBLC Size

The client's net worth should be at least 20–30% of the requested SBLC value.

5. Collateral Verification

Proof of ownership
Updated valuation
Unencumbered assets
Risk-adjusted valuation

C. Purpose & Business Evaluation

6. Purpose Legitimacy

Valid purposes:

Trade financing
Tender guarantees
Performance contracts
Supplier assurance
Project finance

Invalid / suspicious purposes:

"Investment programs"
"Private placement schemes"
Vague reasons with no documents

D. Risk & Liability Assessment

7. SBLC Repayment Ability

If the SBLC is called, can the client repay or liquidate assets?

8. Total Exposure Review

The provider assesses whether issuing the SBLC fits within internal credit exposure limits.

9. Litigation & Reputation Check

Any history of fraud, defaults, or insolvency is a major red flag.

E. Operational Checks

10. Receiving Bank Capability

The beneficiary’s bank must be:

SWIFT-enabled
Capable of receiving MT760
Regulated in a safe jurisdiction

11. Timeline Commitment

The client must be able to follow the full process (2–6 weeks).

12. Broker Chain Detection

Real providers only deal with:

Direct clients
Mandates with evidence

Long broker chains are rejected.

A clear guide on how SBLC providers issue standby letters of credit and verify clients.

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