Data reflects current ranges quoted by top-tier trade-finance desks, ICC guidance and private-credit term sheets (July 2025). This content is explanatory—it is not an offer or solicitation.
7 Questions on Letter-of-Credit Monetisation
1. Does an SBLC provide day-one liquidity?
No. A standby is a contingent liability —insurance, not a cash line. A lender must still agree to discount it, converting the contingent instrument into funded credit.
No. A standby is a contingent liability —insurance, not a cash line. A lender must still agree to discount it, converting the contingent instrument into funded credit.
2. How much funding can I expect and at what all-in cost?
Advance rates clear 65–80 % of face. Add 1–3 % per annum for the issuing bank plus an 8–14 % spread over SOFR for the discounting facility. Factor in legal and escrow fees, and total carry often breaches low-double digits.
Advance rates clear 65–80 % of face. Add 1–3 % per annum for the issuing bank plus an 8–14 % spread over SOFR for the discounting facility. Factor in legal and escrow fees, and total carry often breaches low-double digits.
3. Why can’t the SBLC replace sponsor equity or sub-debt?
Lenders view it as credit mitigation , not capital. They still require the sponsor’s first-loss piece—typically 15–30 % of project cost—or a contractual junior tranche. No skin, no deal.
Lenders view it as credit mitigation , not capital. They still require the sponsor’s first-loss piece—typically 15–30 % of project cost—or a contractual junior tranche. No skin, no deal.
4. What is “double stacking” and why is it fatal?
Double stacking (double encumbrance) occurs when the same SBLC secures two obligations. UCP 600 and ISP 98 prohibit it unless the first beneficiary formally releases its rights. Absent that release, credit committees shut the file.
Double stacking (double encumbrance) occurs when the same SBLC secures two obligations. UCP 600 and ISP 98 prohibit it unless the first beneficiary formally releases its rights. Absent that release, credit committees shut the file.
5. Which collateral carries more weight: the SBLC or my contract suite?
The forward cash-flow grid—PPAs, offtakes, receivables schedules—drives underwriting. The SBLC is a secondary buffer. A robust contract map with enforceable payment waterfalls routinely prices inside SBLC-only structures.
The forward cash-flow grid—PPAs, offtakes, receivables schedules—drives underwriting. The SBLC is a secondary buffer. A robust contract map with enforceable payment waterfalls routinely prices inside SBLC-only structures.
6. How does interest stacking erode returns?
You pay the issuance commission to keep the SBLC live and servicing on the discounted loan. Layering fees on fees lifts the project’s blended cost of capital, compressing the equity IRR—often below hurdle rates.
You pay the issuance commission to keep the SBLC live and servicing on the discounted loan. Layering fees on fees lifts the project’s blended cost of capital, compressing the equity IRR—often below hurdle rates.
7. If discounting seldom pencils, what are the institutional alternatives?
• Receivables securitisation (ABS) — advance ≥ 85 % against diversified invoice pools at SOFR + 200–300 bps.
• Borrowing-base revolver — monthly redetermination against inventory and A/R; pricing SOFR + 350–450 bps.
• Rule 144A / Reg D notes — fixed-rate senior paper to QIBs or accredited investors; tenors 3–5 years.
• Equity bridge loans — short-dated facilities collateralised by committed capital calls.
All lean on recurring cash flows, not a single conditional instrument.
• Receivables securitisation (ABS) — advance ≥ 85 % against diversified invoice pools at SOFR + 200–300 bps.
• Borrowing-base revolver — monthly redetermination against inventory and A/R; pricing SOFR + 350–450 bps.
• Rule 144A / Reg D notes — fixed-rate senior paper to QIBs or accredited investors; tenors 3–5 years.
• Equity bridge loans — short-dated facilities collateralised by committed capital calls.
All lean on recurring cash flows, not a single conditional instrument.
Considering SBLC discounting? Let’s vet the numbers before fees cannibalise returns. Email contact@fgcapitaladvisors.com
; we’ll benchmark discounting against receivables finance, revolvers and private placements within five business days.
