A Standby Letter of Credit (SBLC) is a bank guarantee: the buyer's bank promises to pay the seller if the buyer does not. It is a backup, not the normal way money moves. It is sent bank to bank, usually as a SWIFT MT760, and is governed by ICC rules (ISP98 or UCP 600). In commodity deals it secures the seller against non-payment while a Documentary Letter of Credit or payment against documents does the actual paying.
Definition
A Standby Letter of Credit is an irrevocable undertaking by a bank (the issuing bank) to pay a named beneficiary a stated amount if the bank's customer (the applicant) fails to perform an obligation. In a commodity sale the applicant is the buyer, the beneficiary is the seller, and the obligation is payment for delivered goods.
The word standby is the key. Unlike a Documentary Letter of Credit, which is designed to be drawn on every shipment, an SBLC is designed not to be drawn. It sits in the background and is only called if something goes wrong.
The parties
| Party | Role |
|---|---|
| Applicant | The buyer. Requests the SBLC from its bank and pays the fees. |
| Issuing bank | The buyer's bank. Issues the SBLC and is bound to pay on a compliant demand. |
| Beneficiary | The seller. Can present a demand if the buyer defaults. |
| Advising bank | The seller's bank. Receives the SBLC (MT760) and authenticates it for the seller. |
| Confirming bank (optional) | A bank that adds its own undertaking to pay, useful when the seller does not know the issuing bank. |
How an SBLC is transmitted: MT760 and MT799
Banks talk to each other through SWIFT. Two message types matter here:
- MT799 is a free-format message. Banks use it for pre-advice ("we intend to issue…") or to answer questions. An MT799 is not a guarantee and creates no payment obligation.
- MT760 is the message that actually issues a guarantee or standby letter of credit. When the seller's bank receives an authenticated MT760, the SBLC exists.
Any procedure that treats an MT799 as if it were the instrument itself, or that asks a party to "activate" an SBLC outside the banking system, should be treated with suspicion.
Which rules govern it
SBLCs are usually issued subject to ISP98 (International Standby Practices, ICC Publication 590) or UCP 600 (Uniform Customs and Practice for Documentary Credits). Demand guarantees that are not letters of credit follow URDG 758. The SBLC text states which rules apply; the choice affects how a demand must be worded, how many days the bank has to examine it, and what happens on expiry.
Where the SBLC sits in a commodity procedure
A typical physical-commodity flow, as described on our procedures page, looks like this:
- KYC and compliance verification of both parties.
- Seller issues a Soft Corporate Offer; buyer replies with an ICPO.
- Seller issues the Full Corporate Offer; the parties sign the Sales and Purchase Agreement.
- Buyer's bank issues the SBLC (MT760) or a DLC as agreed in the contract.
- Seller provides proof of product and, where agreed, a performance bond (often 2% of contract value).
- Loading, independent inspection, shipment, presentation of documents and payment.
The SBLC is issued after a signed contract and before shipment. It is never the first thing that changes hands.
What it costs
The issuing bank charges the applicant an issuance fee, usually expressed as a percentage of the face value per year and set according to the applicant's creditworthiness and collateral. The applicant may need to block cash or credit lines for the full amount. The seller pays advising fees and, if requested, confirmation fees at its own bank. For a large cargo the instrument is therefore a real cost, which is one reason serious buyers only issue it once the contract is signed.
- Offers to "lease", "rent" or "monetize" an SBLC. Genuine standby credits secure a specific commercial obligation; they are not investment products.
- A request to send an MT760 before a signed contract, before proof of product, or to a party other than the seller's bank.
- Boilerplate such as "issued by a top 50 world bank" with no bank actually named, or a bank officer who can only be reached through the counterparty.
- Upfront fees payable to an intermediary "to arrange" the instrument.
- Any instruction to verify the SBLC by email or phone number supplied by the other side instead of through your own bank.
How JOLL LLC handles SBLCs
We do not issue, lease or trade bank instruments. Our role is to structure the transaction so that instruments are exchanged bank to bank, at the right stage, against a signed contract, and to verify counterparties before any instrument is requested. If a procedure proposed to you does not follow that order, we will say so.
Structuring a purchase or a supply contract and want the instruments in the right order? Request a consultation or message us on WhatsApp at +1 941 202 4887.