SBLC – Standby Letters of Credit explained by Geordon Saraveloz

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A standby letter of credit (SBLC) is a legal document that guarantees a bank’s commitment of payment to a seller in the event that the buyer–or the bank’s client–defaults on the agreement. The buyer is certain to receive the goods and the seller certain to receive payment. An SBLC is often sought by a business to help it obtain a contract.

There are two main types of standby letters of credit
• A financial SLOC guarantees payment for goods or services as specified by an agreement. An oil refining company, for example, might arrange for such a letter to reassure a seller of crude oil that it can pay for a huge delivery of crude oil.
• The performance SLOC, which is less common, guarantees that the client will complete the project outlined in a contract. The bank agrees to reimburse the third party in the event that its client fails to complete the project.

Specimen Standby Letters of Credit via SWIFT MT760

A STAND•BY LETTER OF CREDIT
UNDER GLOBAL MARKET SECURITIES LENDING AGREEMENT
SWIFT MT 760 (ICC 500/600 URDG 758)

DATE :
NAME OF ISSUING BANK :
ISSUING BANK ADDRESS :
BANK SWIFT CODE :
BANK OFFICER :

NAME OF RECEIVING BANK :
BANK SWIFT CODE :
ATTENTION BANK OFFICER :
STANDBY LETTER OF CREDIT :
BENEFICIARY :
ADDRESS :
CURRENCY :
AMOUNT :
ISSUING DATE :
MATURITY DATE: ONE YEAR + ONE DAY (FROM ISSUING DATE)

77C: NARRATIVE: WE HEREBY OPEN OUR STANDBY LETTER OF CREDIT NO XX AS FOLLOWS:

AT THE REQUEST OF OUR CUSTOMER WE HEREBY ESTABLISH IN YOUR FAVOUR OUR CASH BACKED IRREVOCABLE STANDBY, TRANSFERRABLE AND DIVISIBLE LETTER OF CREDIT FOR MAXIMUM XXX MILLION (EUROS 0,000,000) EUROS, TO GUARANTEE PAYMENT OF THE SUMS DUE TO YOU BY XXXX.THE FACILITIES COVERED BY TH IS INDEMNITY ARE AS FOLLOWS:

TYPE: STANDBY LETTER OF CREDIT AMOUNT: EUROS …0,000,000 MAXIMUM

WE HEREBY IRREVOCABLY UNDERTAKE AND AGREE TO PAY YOU ON RECEIPT OF YOUR CLAIM BY WAY OF EITHER A TESTED TELEX OR AUTHENTICATED SWIFT, WITHOUT ANY FURTHER PROOF OR CONDITION.

THIS STANDBY LETT ER OF CREDIT WILL EXPIRE ON THE ABOVE MENTIONED EXPIRY DATE AT OUR COUNTERS, AFTER WHICH DATE OUR LIABILITY TO YOU UNDER TH IS LETTER OF CREDIT WILL CEASE AND WILL BE OF NO FURTHER EFFECT WHETHER THIS INSTRUMENT IS RETURNED TO USOR NOT.

WE HEREBY ENGAGE YOU THAT CLAIMS RECEIVED IN CONFORMITY WITH THE TERMS OF THIS CREDIT WILL BE DULY HONOURED AND THE DRAWING AMOUNT ACCOMPANIED BY APPLICANTS CONFIRMATION OF DEFAULT SENT TO US, BY WAY OF AUTHENTICATED SWIFT THROUGH ADVISING BANK.

THIS STANDBY LETTER OF CREDIT IS SUBJECT TO THE UNIFORM CUSTOMS AND PRACTICES FOR DOCUMENTARY CREDITS, INTERNATIONAL CHAMBE R OF COMMERCE LATEST REVISION OF PUBLICATION 500/600 URDG 758 AND ENGAGES US IN ACCORDANCE WITH THE TERMS THEREOF.

THIS STANDBY LETTER OF CREDIT SHALL BE GOVERNED BY AND SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF (COUNT RY OF ISSUE). THIS STANDBY LETTER OF CREDIT IS AN OPERATIVE INSTRUMENT.

FOR AND ON BEHALF OF (NAME OF THE ISSUING BANK)

AUT HORIZED OFFICER AUTHORIZED OFFICER
(NAME, TITLE. PIN CODE) (NAME, TITLE, PIN CODE) 

 

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