STAND-BY-LETTER OF CREDIT (SBLC)

A Commercial Letter of Credit is taken as a Guarantee to be used in payment of goods and services. The Stand-by-Letter of Credit (SBLC) is taken as guarantee that the applicant, the customer of issuing bank will execute responsibilities under an agreement. In other words, if an applicant fails to meet the promises made, the beneficiary draws on standby. According to the Controller of Currency, Standbys defined as, ‘any letter of credit or a similar document issued which mentions responsibilities to the beneficiary on the side of the issuer’.

The SBLC (Stand-by-Letter of Credit) mentions details regarding:

  1. To pay back the money borrowed or advanced to or for the account of the account party.
  2. To pay on account of an indebtedness undertaken by the account party.
  3. To pay in case of default by the account party in meeting of any promises made.

In the first condition, the bank which issues the SBLC agrees to pay back the money advanced or borrowed in case if applicant fails to pay. For example, a U.S. bank which offers finance to a local unit of a foreign business may requires SBLC payable to the bank from the foreign unit’s bank to bear the loan. In case, the local business fails to repay the loan, the U.S. bank rely on the standby to recover the unpaid loan amount.

The SBLC may also be used to guarantee the payment of invoices for sales made on open account. The purchasing party may request his bank to provide SBLC to the seller with the criterion that the Standby may be drawn on in case if outstanding bills amount are not paid within the asked time duration. If the purchasing party fails to pay on time and original invoice is unpaid, the seller has the complete authority to draw on the standby presenting a draft, copies of the due invoices and letter with clear mention that invoices are due.

Bank Guarantee (BG)

A Stand-by-Letter of Credit can help facilitate a transaction by providing comfort to the beneficiary. The stand-by-letter acts as a guarantee from the bank that the beneficiary will be paid for his goods or services.

A Solid Agreement

The Stand-by-Letter of Credit obligates the bank to make payment, even if there are disputes between the customer and beneficiary.

Collateral

The customer applying for the Stand-by-Letter of Creditmust have a credit line or collateral equal to the value of the letter. The assets are frozen by the bank until the transaction is completed.

Popular in America

The Stand-by-Letter of Credit is used primarily in the United States and is often called a non-performing letter of credit, because it serves only as backup should the buyer fail to pay as agreed.

Typical Uses

SBLC’s are used to guarantee repayment of loans, to ensure fulfillment of a contract, and to secure payment for goods delivered by third parties

SWIFT MT760

What is an MT760?

An MT760 is when the issuing bank puts a hold on the Client’s funds, blocking the Client from using them. The funds are then at the disposal of the person the MT760 was issued in favor of. For this reason it is not wise to issue an MT760 before receiving product, as this can mean a large financial loss for absolutely no gain. In some cases, unscrupulous traders can even use the MT760 to open a line of credit, which they then default on, leaving the issuer of the MT760 out of pocket.

What Does A MT760 Look Like?

It is important to remember that an MT760 is actually an interbank communication, so one never really sees an MT760. The forms which need to be filled out to apply for an MT760 can vary widely from bank to bank.

How Much Does A MT760 Cost?

The cost of an MT760 varies greatly from bank to bank, MT760 is normally fairly expensive, with the usual bank fee for issuing a MT760 being between 1% and 1.5% of the total value of the MT760depending on the time period of the Bank Instrument.

Is A MT760 Negotiable?

No. Once a MT760 has been issued, it is not negotiable. For this reason, many traders prefer a Letter of Credit, which is negotiable and can be amended in response to unforeseen changes in circumstances, such as a delayed shipping schedule, lower production than anticipated, and other such events.

How Do I Get A MT760?

A MT760 can be obtained from your bank. But Some banks are not willing to issue MT760′s however, if an MT760 is absolutely essential, manymajor global banks working with us, it allows us the ability to issue you a SWIFT MT760 at your convenience.

SWIFT MT799

MT799 is a simple text message, sent bank to bank. This is used for a bank to bank Cash Account, only. The MT799 is not a form of payment and it is not a bank undertaking or promise to pay. It is simply a bank to bank confirmation of the funds on deposit, nothing more.

An account with the SWIFT MT799 capability allows bank-to-bank SWIFT electronic verification for Cash Accounts in compliance with the SWIFT Category 7 “Treasury Markets & Syndication” message types. Often there is a misconception that a particular circumstance requires a SWIFT MT760 message, when in fact, the SWIFT MT799 format provides the required bank confirmation for the application.

There is a $1 million minimum account size for a SWIFT MT 799, and additional costs apply.

SWIFT MT999

An account with the SWIFT MT999 capability allows bank-to-bank SWIFT electronic verification for Cash Accounts, with no further comment. The SWIFT format is an appropriate message for a simple Cash Account communication and it is part of the Common Group of SWIFT formats providing a General Free Format for SWIFT messaging.

There is a $1 million minimum account size for a SWIFT MT999, and additional costs apply.