Standby Letters of Credit
A bank undertaking that stands behind your obligation, is drawn only on default, and can be turned into liquidity.
What a Standby Letter of Credit does
A Standby Letter of Credit is issued by a bank on behalf of its client in favour of a beneficiary. Unlike a documentary credit, it is not meant to be the primary means of payment. It is drawn only if the client fails to perform an obligation, typically against a simple written demand.
Because a standby from an A-rated bank is a strong, independent undertaking, beneficiaries accept it as security for contracts and lenders accept it as credit support. It can also be monetized to release working capital.
Finance House structures the standby to match the underlying contract, agrees the wording with the beneficiary where possible, and arranges issuance through a partner bank.
How Finance House arranges it
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Define the obligation
We identify what the standby secures, the beneficiary, the amount and the required validity.
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Agree the wording
We draft the text, share it with the beneficiary where appropriate, and finalise the application.
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Bank issuance
The partner bank issues the standby and transmits it to the beneficiary's bank by SWIFT.
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Ongoing support
We handle amendments, extensions and, if required, the monetization process.
Where it is used
Contract security
Performance and payment security for supply, lease, distribution and construction agreements.
Credit support
Collateral for loans and facilities, allowing a borrower to draw on a bank's standing rather than its own.
Liquidity
An issued standby can be monetized to release cash for trade or project needs.
Common questions
Is an SBLC the same as a Bank Guarantee?
They serve a similar purpose but are governed by different rules and conventions. Standbys are common where the beneficiary or its bank prefers the letter of credit format; guarantees are common in construction and public tenders. Your consultant will recommend the format the beneficiary will accept.
What does the beneficiary receive?
An authenticated SWIFT MT760 message from the issuing bank to the beneficiary's bank, containing the full text of the standby.
Can a standby be extended?
Yes. Extensions and other amendments are arranged through the issuing bank with the beneficiary's consent.
Discuss your transaction with a consultant.
Tell us about the deal, the counterparty and the timeline. We will come back with the instrument and structure we recommend.