Standby letters of credit · SBLC
A safety net for your commercial commitments.
A standby letter of credit is a payment commitment that is only called if an agreed obligation is not met. It can reassure a supplier or a client in open-account trade or long-term contracts. We help you define it precisely and coordinate the request.
When a standby letter of credit is used
Unlike a documentary letter of credit, a standby is not meant to be drawn in the normal course of business. It secures a commitment in the background.
Open-account supply
A supplier extends payment terms to a buyer and wants a backstop if invoices are not paid.
Recurring purchase contracts
A framework agreement with successive shipments, where one instrument covers the payment obligation over a period.
Service and lease agreements
A service provider or lessor wants security for the payment obligations of its client.
Performance commitments
In some jurisdictions, a standby plays the role of a performance or advance payment guarantee.
Our role
We help you understand and structure the standby, prepare the file and coordinate the request. The SBLC is issued by a bank, after its own review of the operation and of the applicant.
- Clarify the contract and the obligation to be secured
- Review the amount, validity, call conditions and documents required
- Prepare the file and the proposed wording
- Coordinate with the beneficiary and the institutions involved
- Follow the exchanges until the standby is issued
Illustrative example
A distributor moving to open-account terms
A food distributor in Morocco buys regularly from a producer in Brazil. The producer is willing to move from prepayment to 60-day payment terms, provided the buyer arranges a standby letter of credit for an amount close to two months of purchases.
The key questions are: what exactly triggers a call, which documents the beneficiary must present, how long the standby remains valid and whether it can be renewed. We work on these points with the client before the request reaches the institution.
This scenario is illustrative. It does not describe a transaction completed by Star Alliance Consulting.
What we need to review your request
A short description is enough at first. Supporting documents come later.
- The contract or business relationship and the obligation to secure
- The amount, currency and requested validity
- Your company, the beneficiary’s country and its requirements
- Any draft wording received from the beneficiary
- The desired timeline
How the process unfolds
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First exchange
You explain the commitment to be secured and what the beneficiary is asking for.
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Review
We analyse the contract, the call conditions and the requested wording.
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Preparation
We assemble the file and the proposed text with you.
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Coordination
We follow the exchanges with the parties and institutions until a decision is reached.
Questions about standby letters of credit
Can an SBLC be used to raise financing?
An SBLC is designed to secure a commercial obligation between identified parties. We work on standbys linked to a real underlying transaction, and we do not offer instruments for monetisation or trading programmes.
What is the difference between an SBLC and a bank guarantee?
They serve similar purposes. The standby is common in some jurisdictions and is often subject to ISP98 or UCP 600, whereas demand guarantees are often governed by URDG 758 or local law. The right choice depends on the contract and the beneficiary.
Will the SBLC be drawn?
Only if the beneficiary presents a demand that complies with the terms of the standby — usually after a default under the underlying contract. That is why the wording of the call conditions matters.
What does it cost?
Costs depend on the amount, the duration, the applicant’s profile, the countries involved and the institution. We give you an indication after reviewing the operation.
Have a transaction that needs an LC, SBLC or guarantee?
Tell us about it in a few lines. We will reply with an honest view of the options and the next steps.
Or write to us at info@starallianceconsult.com