Friday, 11 August 2017

Need To Know More About SBLC's?

Standby Letter of Credit Meaning

Stand By Letter of Credit (SBLC), it is a bank instrument quite similar to a bank guarantee "BG"; they both make sure that the beneficiary gets paid. You might see "SLOC" abbreviation, this is just the same thing as an SBLC - it's all in the spelling.

What is an SBLC? 
Although it is not a form of payment, a Standby Letter of Credit acts like a back up payment should payments not be made. If the Buyer doesn't meet payment obligations set in the Deed Of Agreement (DOA), the Provider of the SBLC, is offered protection by the bank. Any business can apply for an SBLC but generally speaking those who need an SBLC tend to be within the Industrial sectors and in Oil and Gas.


What Are SBLC’s Used For?

A Standby Letter of Credit is needed and used in the case of non payment of goods received. SBLC’s are normally used in shipment of goods worldwide and it’s one of the best ways to grow a company. Here’s a video with explanation of what an Stand by Letter of Credit is: https://www.youtube.com/watch?v=rK3...

Finance A Business Using An SBLC

There are many options you can choose to finance a business. One method of financing a business can be done by leasing an SBLC. The only drawback is that if you are a startup business with no cash equity, SBLC’s often require a significant pot of money to pay for the lease.However, it is appropriate for those looking to grow or expand a a business. Any business can be funded using an SBLC:

  • Oil and Gas Project
  • Real Estate
  • Mining
  • Renewable Energy
  • Or any other businesses in manufacturing

Example Of Leasing an SBLC 

If you want to buy a shipment of 10 Yachts at $20 Million USD each, which event happens first? you buy the for yachts in advance in the hopes the shipment will be delivered OR, the Seller hopes the Buyer will pay for the yacht upon delivery? This creates a catch 22 situation. In order to create some comfort and security within the transaction, the Buyer can initiate an SBLC to cover the cost of purchase in which the Seller can call in the SBLC should the Buyer not pay for the yachts.

Are Standby letter Of Credit Legal?

Yes, Standby Letter of Credit are frequently used in banking and trade finance. They can be monetised and put into a trade platform. This is a service very hard to by. Banks are not allowed to advertise such products and they do not belong to a bank. The bank on both Buyer and Seller sides acts as an intermediary by sending messages to confirm and issue the bank instruments.

Genuine Bank Instrument Providers

Genuine Providers of SBLC's hold large cash deposits in a top bank and they use it to buy collateral. The banks recognise that the Provider has good credit and that is how the instrument is cut. The bank guarantees payment on behalf of their client, the Provider. The Providers are usually large organizations such as Hedge Funds and Pension funds.

The image below shows how collateral is pledged for bank instruments thus enabling you to purchase or lease SBLC's or other bank guarantees.

(C) Prestige Capital Partners



Applying for an SBLC

Getting an Standby letter of credit is like applying for a commercial loan but it is done quickly (in a matter of weeks) because with some providers, you don't have to prove your creditworthiness. Please let me say that if you do not wish to pay for the SWIFT Fees then you will be asked for POF. An SBLC document that stands in good faith that you have significant funds and can repay the loan. You will not be given a signed SBLC to show your bank if you have not submitted the POF document. A letter of credit is an obligation taken on by you saying that in case of non payment, the SBLC can be activated. 

If you need an SBLC, use our contact form to put in an initial inquiry. We will then send you a DOA to fill in. (Intermediaries will be asked to fill out a Geneology report) Please fill in the DOA form fully, being clear and accurate. Double check the details before you send it back any mistakes can be costly! Banks will send each other RWA and it may be up to you to pay for the SWIFT fees. The SBLC is then ready.

Letter Of Credit Process

Get A Leased SBLC 

When you apply to lease an SBLC, the term is not actually correct in the sense that it's not possible to actually lease an SBLC. Instead, the Standby Letter takes place through what is known as a temporary Collateral Transfer Agreement. Basically, the Provider offers some of their assets (can be a set fee) in a facilitating bank for temporary (joint) ownership (for a set term) to the Buyer.

SBLC SWIFT Messages

The MT's are SWIFT text messages sent between banks. Banks communicate this way all the time, it's a fact that 15 million messages are sent daily. This message type allows an operator to type various messages pertaining to MT700 communications. If all agreements are in place, this is how communication and money is transferred to both parties.

MT760

This is the bank instrument.

MT799

This is a message from the receiver bank. When you apply for a bank instrument, your bank will send a message called a swift message (MT799) to a bank instrument issuer. This represents the Pre advice.

MT103 
This is the actual wire payment transfer via SWIFT. 

Fees For Leased and Purchased SBLC

Some Providers may ask the Buyer to pay the SWIFT Fee. The bank instrument won't be made available until the SWIFT fee has been paid. Most often than not, the Buyers will be charged. If the Buyer really needs a bank instrument this proves that the Buyer has funds ready in their account and shows goodwill.

The Swift fee is a bank fee. All banks charge a SWIFT Fees as they are the ones transmitting MT Messages. The lease fee is the fee you pay for the bank instrument.

The one thing we can do for Buyers is one of our Providers can issue a refund undertaking letter to say that..
The Provider will reimburse the SWIFT fee if they can not perform.

Bank Instrument Commission Fees

One thing I want to talk about here and that is the commission for lease fees for a bank instruments. Most Buyers do not want to pay upfront fees. Swift fees in some cases can be covered/waivered by the Provider but most cases, its not. But what about the commissions? You may have come across advertisers who say they can get a leased SBLC for your for 9+2. In this scenario, the lease fee is 9% and the commission rate (on both buyer and seller side is 2%)

If you see formats such as (0.5%+X+X) This usually means there is an upfront fee which is on top of the lease and commission rate. Some intermediaries do this and it's very cheeky! Basically they are practically trying to get an extra "squeeze" like some kind of admin charge.The whole industry is trying to clear up the unethical side of bank instrument leasing/purchsing as it's frought with scammers and fraudulent activities. Prestige group avoided this industry until they were introduced to credible sources.(Read the article about finance scams and bank guarantee scams

There are some Providers that won't even look at files unless they are paid "X amount". My group finds this practice unethical and won't work on such principles. What Prestige will do is to outline exactly what you need to pay and the undertaking process in a clear format so things are easily understood without any misconception.

Documents For An Standby Letter of Credit

When applying to lease an SBLC, there is an important document that need to be filled in. The document is called a DOA - Deed of Agreement. The DOA helps ensure correct and timely payment with the responsible Buyer and Seller information along with bank accounts and banking officers. By defaulting on the loan, the bank can foreclose on the collateral you pledged and sell it to recover the debt and in turn paying the owing sum of money to the beneficiary.

The SBLC will reimburse the money you sent to the non-performing if the other party is at fault and broke the terms within the contract. The Provider advises the financial institution that the credit letter exists and as confirmed the bank will issue a RWA to the sellers bank. The seller should have funds to pay for SWIFT fees and they will issue a RWA saying that the seller is capable of buying or leasing the SBLC. Once fees are paid, the banks will communicate and an Stand By Letter of Credit is issued.

Deed of Agreement (DOA)

The Deed of Agreement is a document of the terms and condition of the sblc along with fees.Once the DOA is signed an RWA (Ready, Willing, Able) letter is then sent by the purchaser's (of SBLC) bank to state that the purchaser has the required funds to pay for the SBLC.

Once this is complete, some providers will charge an upfront fee- some won't, but all bank SWIFT fees must be paid in full.(This is common practice) It all happens fast so it is important to stand by so you can meet the timelines. Some providers if you haven't met the first payment will issue a stay of execution. this is like a final call.

Ready, Willing And Able (RWA)

The RWA is a document is issued by the Bank on behalf of their client (the Buyer). It's just a SWIFT message (MT799) notifying that there is intent and capability to to fulfil their part of the transaction legally and financially.

How Long Does The Process Take To Issue An SBLC?

This varies depending on the instrument provider. It also varies on how fast parties act. Once the DOA is signed and agreed by both parties, it’s a legal document and you have to stick to the timelines mentioned. 

Monetizing A Bank Instrument

The buyer can choose to monetise the SBLC. The end of term lease, the bank instrument must be paid back free from any liens /encumbrances. As well at the end of the agreement, the assets are automatically given back to the Provider.

Prestige Bank Instrument Services 

Prestige Capital Partners now provides services for businesses who need an SBLC/BG. All services are done in house, with vertical integration. This is a closed end transaction whereby we put you in touch with our lawyers, Provider, Monetisers and traders all acknowledge each other. (More information about our bank instrument services here). 

From there you are able to complete the transaction from leasing or purchasing a bank instrument form our providers to monetisation. If you want we can also put the bank instrument to trade. This solution is perfect for those who are worried about scammers and have uncertainties of the procedure. My team is on hand if you want to call and discuss options.
 

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