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Home » PRIVATE PLACEMENT

What is a Stand by Letter of Credit (SBLC) ?

sblc stand by letter of credit private placement What is a Stand by Letter of Credit (SBLC) ? In the private placement business, the bad joke is, there are more acronyms than there are closed deals.  Though we HAVE heard of several success stories, there are far more terms than you’d think. Since understanding this “lingo” is a key part of conversations in private placement, we thought we’d cover one of the most important terms of all, the “SBLC”.

Until recent years, very few private placement brokers mentioned SBLC’s, or even knew what they were. This was a time where investors pledged cash or bank instruments for their private placement investments, not “fictional” leased assets.  In today’s private placement world, SBLC’s are all over the scene, popping up like weeds! Unfortunately, they have become popular in bank instrument leasing programs, and are now associated with this “niche” of the industry.   For those who don’t know what a “SBLC” is, let’s start at the beginning by defining its meaning and applications.

By definition, a SBLC (Stand by Letter of Credit) is a document issued by a bank, guaranteeing payment on behalf of a client. This is used as a “payment of last resort” if the client fails to fulfill a contractual commitment with a third party. In all reality, the SBLC is just a piece of paper with a “value” backed by the good credit of the bank, allowing clients use a “conditional collateral” if needed.

The SBLC (Stand by Letter of Credit) is commonly used when two parties enter into a contract calling for one party to arrange a L/C in favor of the other.  With any Stand by Letter of Credit, the agreement is the SBLC will NOT be “drawn” unless the owner defaults on the contract.  If the beneficiary was to monetize the SBLC without prior agreement, the owner could dispute the contract in court. The truth is, SBLC’s are rare and used MOSTLY in industrial or bulk commodity sales, serving as a “performance bond” of sorts.

Despite what private placement brokers may claim, the SBLC is not used for leasing or investing very often. Just like we explained above, it’s MOSTLY used in bulk, wholesale, and logistical markets. If you are an investor, watch out for the infamous “SBLC leasing scam”.  Don’t waste your time “leasing” an SBLC, or having it “fresh cut” from the bank, it will never fund your project or get you into PPP.  The fact is, unless you are using it for credit enhancement or proof of temporary collateral, a “leased” SBLC will ALWAYS be useless.  In addition, if you are a private placement broker, ALWAYS BEWARE of investors with SBLC’s.  This could mean the funds are leased, fraudulent, or a part of a prior deal gone wrong.  All in all, the SBLC is legit, but brokers have tried to apply it to a process it isn’t made for.

In summary, though the SBLC is a credible term, it’s ONLY important when private placement investors are in the USA. Since USA banks do NOT offer the MT 760, the SBLC is the only safe way to assign a trader as temporary beneficiary. Remember, do yourself a favor and BEWARE of PPP brokers who use the term “SBLC”.  In all reality, incorrect usage of the term should be considered a HUGE RED FLAG and nothing less!

If you want to learn how to spot other”warning signs” in PPP, take a minute and read the article “Top 10 Red Flags for Private Placement“. It will help you identify real opportunities, while providing key tips to keep you sharp in this oh so unique “business”…

InsideTrade LLC Staff
(412) 235-2855

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9 Comments »

  • Jack Pierce said:

    If this is right, why do people keep calling me asking me to lease an sblc from them? I wanted to get into ppp but only have 720k, so I am going to keep looking but thanks for the advice in the article.

    - 22 January 2010 at 6:13 am
  • David said:

    Dear Jack Pierce. If you have 720k, I have a business with 17% of profits in 3 weeks. Is use BG for it. We have a bank that issues them and another that discounts. Once it is all the documents signed between banks and investor, is when applied investment. No risk. If you need some information my email is baledel1@yahoo.es

    - 4 February 2010 at 8:15 pm
  • fasar khan said:

    Jack Pierce – Leased instruments is just a load of nosnense. You can not trade leased instruments in't just nonsense. Let's say I go into a bank and ask for a loan and say I want to use my new BMW i've leased as security – how can I use that as security when it doesn't belong to me.

    I can get you into a proven PPP but you have to have the right attitude. Contact me if you are interested.

    - 8 February 2010 at 3:53 pm
  • fasar khan said:

    Not only do the instruments have to be owned but cash backed. I don't bother with instruments unlesss they are owned and cashed backed.

    I can get you into a cash trade for 720k. Let me know:

    fasarkhan@yahoo.co.uk

    - 8 February 2010 at 3:55 pm
  • fasar said:

    If you have 720k in pounds I can get you into a cash trade where money doesnt leave your account.

    - 12 February 2010 at 3:51 pm
  • Scott said:

    if you are still inquiring about your options email me your contact information dny_placements@hotmail.com

    - 24 April 2010 at 9:24 pm
  • HSBC LONDON said:

    Dear Sir,

    HSBC Bank Plc located in London United kingdom is now providing an instant loan services and as well financing projects in developed and developing nations.

    We offer this services to foster and enhance the growth of your business daily activity. At the main stream of our services we are providing soft loan, micro-credit finance loan, mortgage loan,
    construction loan and agricultural loan.

    Equally, We provide all kinds of banking instruments (MTN,BG,SBLC, BCL Etc.) as one of the top 25 European bank.

    Also we require brokers and financial consultants that will work with our firm in their respective countries are required.

    For further inquiries contact:

    Mr Gerry Robert
    Loans/Credit Operations Manager
    HSBC Holdings plc, 8 Canada Square
    London E14 5HQ. United Kingdom
    Tel:+44-703-195-4633.
    Fax:+44-870-974-8171.
    hsbcukplc@rediffmail.com

    - 17 June 2010 at 1:36 am
  • CHETAN said:

    WE CAN ARRANGE LEASE SBLC/BG
    WITHOUT UPFRONT, WITHOUT ESCROW, WITHOUT MT 103 FIRST FROM BORROWER AND WITHOUT CORPORATE REFUND RECOURSE UNDERTAKING
    WE NEED JUST BCL ALONG WITH APPLICATION
    minimum euros 100m
    MT 799 FROM PROVIDER WILL BE ISSUED FIRST
    IF INTERESTED SEND YOUR SPECIFIC DEMAND DIRECT ON OUR MAIL
    PASSPORT2FINANCE@YMAIL.COM

    - 12 July 2010 at 10:44 am
  • kapil said:

    We are looking for MTNs, T-STRIPS, FC BGs
    Please make offer giving full details
    Send paperwork with commission structure
    direct on our mail
    buynsell_bankinstruments @ yahoo dot com

    - 12 July 2010 at 10:46 am

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