SBLC Structures: Fully Collateralized vs. Undercollateralized

A fully collateralized SBLC requires the sponsor to deposit the entire face value—often as cash or high-grade securities. An undercollateralized SBLC lets sponsors pledge a fraction (typically 10–30%) while arranging guarantees or credit wraps to cover the balance. Each structure affects cost, turnaround and the sponsor’s liquidity.

SBLC Underwriting Workflow

1. Credit Assessment — Review sponsor financial statements, credit history and existing obligations.
2. KYC & Compliance — Complete beneficial-ownership checks, sanctions screening and regulatory filings.
3. Document Review — Align the sales contract, SBLC draft and collateral agreement to avoid discrepancies.
4. Collateral Evaluation — Verify pledged assets or third-party guarantees meet bank criteria and lien perfection rules.
5. Price Quotation — Banks set fees based on collateral margin, tenor and perceived invocation risk.
6. SWIFT Issuance — Send MT 760/767 instructions to the advising bank; confirm acceptance with the beneficiary.

Collateral Options and Third-Party Backing

When sponsors lack full cash cover, they can involve external partners or substitute assets:

• Equity Partner Injection — A co-investor deposits cash or securities into escrow to meet margin requirements.
• Parent Company Guarantee — A letter of comfort from a creditworthy affiliate stands in for collateral.
• Specialty Insurer Wraps — Monoline insurers or credit enhancers underwrite the shortfall, reducing cash pledges.
• Export Credit Agency Lines — ECA guarantees can backstop part of the SBLC in trade transactions.
• Rated Security Substitution — Investment-grade bonds or commercial paper replace cash collateral.
• Guarantee Funds — Third-party guarantee providers cover a portion of the face value for a fee.

Steps to Obtain Your SBLC

1. Engagement & Data Gathering — Provide financials, contracts and collateral details.
2. Underwriting Proposal — We prepare a credit memo outlining required margin and fees.
3. Collateral & Guarantee Agreements — Draft security deeds, escrow agreements or guarantee letters.
4. Bank Submission — Submit application to the chosen bank, including KYC, legal opinions and collateral docs.
5. Issuance & Confirmation — Bank issues the SBLC; we confirm with the beneficiary’s bank to activate coverage.
6. Ongoing Administration — Manage collateral returns, renewals or amendments until expiry or drawdown resolution.

Frequently Asked Questions

What margin is typical for undercollateralized SBLCs?
Banks often require 10–30% cash or rated-asset margin, supplemented by a third-party guarantee or wrap.

Can I use a parent guarantee instead of cash?
Yes, provided the parent’s credit rating meets the bank’s minimum criteria and the guarantee is legally perfected.

How long does issuance take?
With full documentation, 5–10 business days; expedited workflows may close in 2–3 days at higher fees.

What drives SBLC fees?
Margin ratio, tenor, invocation risk, bank credit lines used and complexity of legal documentation all affect pricing.

Disclaimers & Important Considerations

FG Capital Advisors provides advisory and arrangement services only. SBLC issuance and collateral requirements depend on bank underwriting, legal reviews and regulatory approvals.

Sponsors should consult independent legal, tax and financial experts before committing collateral or guarantees for standby facilities.