SBLC - It’s a Bank-to-Bank Instrument

Many business owners ask their bank for an SBLC and are surprised when the answer is no. Stefan Neuss, founder of WERA Capital Partners, explains why: a standby letter of credit is an instrument between banks, not between a bank and its customer.

Every bank that works with SBLCs has a special department for them, usually at its headquarters, not in local branches. A client who banks with a branch must ask their local banker, who then contacts this department. And only companies with a serious business, substantial turnover and a solid track record will be considered.

An SBLC is issued on behalf of a company, but the instrument itself passes from bank to bank. Both sides carry out strict "know your customer" (KYC) checks, often on several levels. A German bank, for example, applies German and European rules.

For this reason, Neuss warns against offers to "rent" or "lease" an SBLC. "It's nonsense," he says. An SBLC must be issued to the company that will actually use it.

Once the contracts are signed, the issuing bank usually sends a bank-to-bank message, an MT199 or MT799, to tell the receiving bank that the funds are blocked and that it is ready to issue the SBLC for a named client. If the receiving bank has completed its own checks and confirms, the issuing bank sends the SBLC itself as an MT760, a binding guarantee between the two banks.

The receiving bank's head office then informs the client's local branch that the instrument has arrived, and the client can use it. The client does not contact the other bank directly; contracts often forbid it.

An SBLC can serve, for example, as security for a business credit line or a property transaction. For owners whose own bank has not offered one, WERA Capital Partners explains the options in a 1h private consultation over zoom.