Important Disclosure. For corporate sponsors and accredited investors. Not a public offer. Local restrictions may apply. Prepared September 2025.
Standby Letters of Credit: Costs, Collateral, and Margin Funding
An SBLC is an independent, irrevocable bank undertaking to pay upon a complying demand if the applicant fails to perform or pay. Most standbys reference ISP98. Some use UCP 600. Below is a direct view of pricing, common fee components, collateral asks, timelines, what documents banks expect, and realistic ways sponsors fund the margin.
Rule Sets
ISP98 for standbys and UCP 600 in some trade use cases. The rule set on the face governs presentation and expiry mechanics.
Typical Uses
Performance, advance-payment, warranty, payment standbys, and credit support for structured contracts.
1. Definition and Governing Rules
- Nature. Independent commitment to honor a demand that meets documentary conditions.
- Rule set. Confirm ISP98 or UCP 600 in the draft text and align the presentation to the underlying contract.
- Bank practice. Credit underwriting and documentation mirror loan processes even when collateral is posted.
2. Cost Components
| Component | Typical Pricing | How Charged | Primary Drivers |
|---|---|---|---|
| Issuance or commitment fee | 1.0% to 3.0% per annum on face value | Accrued over tenor, often billed quarterly | Applicant credit profile, tenor, structure, sector concentration |
| Confirmation fee (if required) | 0.25% to 2.0% per annum equivalent | Often per quarter or part thereof | Issuing bank rating, country risk, currency, tenor |
| Advising and amendments | Flat charges, commonly USD 30 to 300 per event | Per advice or amendment | Channel, workload, tariff |
| SWIFT messaging (MT760 or MT767) | Flat charge, commonly USD 30 to 100 per message | Per message | Bank schedule and network fees |
| Other | Courier, compliance, stamp duties where applicable | Per item or jurisdiction | Local rules and documentation method |
Planning guidance. For standard corporate risk, budget 1% to 3% per annum for issuance, plus any confirmation charge and modest flat fees.
3. Collateral Expectations
- Cash or cash equivalents. Many banks require pledged cash for non investment grade applicants. Percentages can reach 100% for weak credits.
- Securities pledge. Marketable securities under a control agreement with agreed haircuts.
- Assignments. Assignments of proceeds, offtaker receivables, or LC proceeds can supplement collateral.
- FX buffer. If collateral currency differs from the SBLC currency, buffers of 100% to 105% are common.
- Step downs. For performance standbys, negotiate milestone step downs that release pledged cash as work completes.
4. Illustrative Cost Scenarios
| Scenario | Face Value | Tenor | Issuance Fee | Confirmation Fee | Flat or Admin | Year One Total |
|---|---|---|---|---|---|---|
| A. Cross border with confirmation | USD 10,000,000 | 12 months | 1.50% = 150,000 | 0.75% = 75,000 | ~1,000 | ~226,000 |
| B. Higher risk and longer tenor | USD 25,000,000 | 18 months | 2.50% per annum = 937,500 | 1.25% per annum = 468,750 | ~2,000 | ~1,408,250 |
| C. Cash secured with established limits | USD 20,000,000 | 12 months | 0.90% = 180,000 | 0.00% = 0 | ~800 | ~180,800 |
Figures are indicative and exclude arranger retainers or success fees where an advisor is engaged.
5. Tenor and Timelines
- Tenor. One year is common with optional evergreen auto renewal. Longer performance standbys are used for multi year projects.
- Underwriting. KYC, credit, structure, and documentation processes are similar to a term facility.
- Lead time. Days to weeks depending on complexity and whether limits and collateral are already in place.
6. Documents Banks Expect To See
Applicant Package
Audited financials, recent management accounts, bank statements, corporate documents, ownership and control chart, KYC.
Transaction Package
Underlying contract, draft standby text with rule set, beneficiary details, performance or payment milestones, security and assignment terms.
Collateral Evidence
Cash on account, custody statements for pledged securities, offtake LC or prepayment terms if proceeds are assigned.
Compliance
Sanctions and AML checks for counterparties, permits where relevant, and any local legal opinions requested by the bank.
7. Practical Ways To Fund The Margin
- Equity cash. Deposit or short dated T bill account at the issuing bank or custodian.
- Securities backed margin. Pledge marketable securities with agreed haircuts under control agreements.
- Offtaker support. Offtaker LC or prepayment with proceeds assigned to the SBLC bank.
- Surety in place of performance SBLC. If acceptable to the beneficiary, a performance bond can reduce the cash ask.
- ABL or receivables finance. Raise liquidity against eligible AR or inventory and post proceeds as collateral.
- Parent or JV guarantee. Stronger sponsor backstops can reduce or remove cash collateral.
- Milestone step downs. Release pledged cash as performance risk declines.
8. Operational Points and Red Flags
- MT760 is a message type. It is a flat SWIFT charge, not a percentage. Risk fees are issuance and confirmation fees.
- No “leased SBLC monetization”. Serious banks and funds do not accept leased SBLCs for cash monetization.
- Underwriting before funds. Do not wire large “admin” sums to third party escrow before approvals and docs.
- Rule set on the face. Confirm ISP98 or UCP 600 and align presentation with the underlying contract.
- Expiry, governing law, venue. Make sure timelines and law are consistent with the contract and collection window.
9. Quick Checklist For Sponsors
- Confirm rule set and beneficiary wording early.
- Budget 1% to 3% per annum for issuance plus any confirmation fee.
- Plan for cash or marketable securities collateral. Higher percentages for weaker credits.
- Align tenor and expiry with contract milestones and any payment tail.
- Negotiate step downs and release mechanics in advance.
10. What FG Capital Advisors Does — And Does Not Do
What We Do
Arrange and advise on bank issued standbys tied to real contracts and assets, run underwriting and documentation, structure confirmation if needed, and help sponsors plan margin funding.
What We Do Not Do
No guaranteed approvals, no leased SBLC schemes, no shortcuts around credit. We serve post revenue companies. Minimums and due diligence apply.
11. FAQs
Is an SBLC the same as a bank guarantee
Functionally similar. SBLCs typically reference ISP98 or UCP 600. Demand guarantees often reference URDG 758. Beneficiary policy drives the preference.
Can a bank send MT760 before collateral is posted
No. Messaging follows credit approval and documentation, with required security in place.
How close are indicative fees to finals
With a complete package and stable scope, finals usually track the indicated range, subject to credit and country risk at issuance.
Request A Costed SBLC Plan And Margin Funding Options
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Start Your SBLC RequestDisclaimer. Pricing and structures are indicative and subject to bank credit approval, tenor, country risk, and documentary terms. Terms are set by issuing and confirming banks. FG Capital Advisors provides advisory and arrangement services on a best efforts basis and does not guarantee issuance. We serve post revenue companies and reserve the right to decline mandates that do not meet underwriting standards.
