Leased SBLCs and bank guarantees: how the offers work and what to do instead

What is a leased SBLC or bank guarantee?

“Leased”, “rented” or “BG lease” offers describe a standby letter of credit (SBLC) or bank guarantee that a provider, often presented as a fund, a trust or a company with a credit line at a large bank, will arrange for a client who does not have the credit standing to obtain one. The usual sequence is:

• the client signs a “deed of agreement” or similar contract and pays a fee, typically quoted as a percentage of face value and often split between an upfront part and a later part;
• the provider’s bank is said to send an MT799 announcing readiness, followed by an MT760 to the client’s bank;
• the client is told to use the instrument as collateral, to have it “monetized”, or to place it in a trading programme;
• the instrument is to be “returned” at the end of a fixed term, often one year and one day.

The offer is aimed at companies with a real project and a real financing gap. That is what makes it attractive, and also what makes the loss painful when the instrument does not perform as promised.

How is a real bank guarantee or SBLC issued?

A genuine instrument starts with a credit relationship. The applicant is the bank’s own customer. The bank completes its know-your-customer checks, analyses the applicant’s capacity to reimburse, and approves a facility, often secured by a cash margin, other collateral or an existing credit line. The applicant signs a counter-indemnity or reimbursement agreement.

The instrument names a beneficiary and supports an identified obligation: a supply contract, a construction contract, a loan, a lease of premises. The ICC model form for demand guarantees under URDG 758 includes a field identifying the underlying relationship. A standby is usually issued subject to ISP98, a demand guarantee subject to URDG 758. The issuing bank then sends the instrument by authenticated SWIFT message (MT760) to the beneficiary’s bank, which checks the authentication and advises it.

If the beneficiary makes a complying demand, the bank pays and debits the applicant. The exposure sits on the applicant’s credit limit until the instrument expires or is released. See our guides on bank guarantees and standby letters of credit.

Why banks do not issue guarantees for unrelated “lessees”

• Reimbursement risk. When a guarantee is drawn, the bank pays and claims the amount from its applicant. A provider that “leases” an instrument to an unrelated client would be guaranteeing that client’s performance for a fee. No credit committee approves that without analysing the client, which is precisely what the lease is supposed to avoid.
• Know your customer. Banks must understand who benefits from an instrument and why. An undertaking designed to circulate between unknown parties is a compliance concern, not a product.
• Purpose. A guarantee supports a specific obligation owed to a specific beneficiary. An instrument with no underlying transaction has no legitimate drawing scenario.
• Limits and capital. Guarantees and standbys count against the applicant’s credit limits and the bank’s own capital requirements. Banks do not issue them as idle collateral for third parties.

Legitimate third-party support does exist. A parent company, a shareholder or a partner can ask its bank to issue a guarantee for a subsidiary’s or a project’s obligation. It works because the supporting party knowingly accepts the credit risk of someone it knows, and its bank underwrites it like any other facility. That is a credit arrangement between related parties, not a rental.

What happens in practice with leased-instrument offers

Outcomes reported in regulators’ warnings and investigations tend to follow a few patterns:

• the fee is paid and the instrument never arrives, followed by new fees for “compliance”, “SWIFT charges” or “insurance”;
• a PDF, an email or a screenshot of an “MT760” arrives, but the client’s bank has received nothing authenticated;
• an MT799 arrives stating that a bank is “ready, willing and able”, which creates no obligation (see RWA letters);
• a document arrives from an entity whose name resembles a real bank but which is unregulated or does not exist, a pattern the ICC Financial Investigation Bureau has reported;
• a lender asked to “monetize” the instrument declines, and the fee is not refunded.

The FBI warns that counterfeit SWIFT messages, including “MT 799” and “MT 760”, are used to make SBLC scams look legitimate, and that fraudsters make improper references to real banks without their knowledge. Presenting an instrument that later proves false can also expose the presenter to claims from its own counterparties.

Red flags

• The words “lease”, “rent”, “seasoned”, “fresh cut” or “one year and one day”.
• An unnamed “top 25” issuing bank, revealed only after payment.
• Fees payable before any bank has issued or advised anything, especially to personal accounts or attorney escrow accounts.
• A promise that the instrument can be monetized at a fixed percentage, or will generate trading returns.
• No question asked about your contract, your business or the obligation the instrument will support.
• Secrecy, non-circumvention agreements and pressure to sign quickly.
• Requests for a “client information sheet” with copies of passports and bank details before any verifiable proposal.

What are the legitimate alternatives?

Example (illustrative): a contractor wins a public works contract and must provide a performance guarantee its bank cannot fully cover. Instead of renting an instrument, it offers its bank a partial cash margin and a counter-indemnity from its parent company, and asks the project owner whether a surety bond is acceptable for the remainder.

How Star Alliance can help

Star Alliance Consulting does not lease, sell or monetize instruments and has no special access to any bank. We review the transaction, help prepare the file and the proposed guarantee or standby wording, and coordinate with the parties and the issuing institutions; the decision to issue belongs to the issuing institution. If you have received a leasing offer, you can ask us to review it, or describe your guarantee need.

Frequently asked questions