It is impossible to get an SBLC with no upfront fee or collateral.

Anyone offering such arrangements is likely attempting or unknowingly facilitating identity theft, generally these bogus offers are used as phishing bait for passport copies, ID & phone numbers,  just like for alleged Private Placement Programs. They inundate the web through LinkedIn & Facebook Groups with bogus contracts. Here's the truth: When issuing a Standby Letter of Credit (SBLC), the bank must ensure it is backed by sufficient assets. If the applicant lacks the necessary collateral, they must raise those assets from a third party, either by issuing debt or selling equity. This process involves financial structuring, due diligence, and risk assessment, all of which come with associated costs.

Those contracts are then shared by clueless brokers looking to get rich quick over the WhatsApp & Skype. Hence the myth of the ''SBLC DOA'', with ''BPU/ICBPO'' is perpetrated.

Most sensible business people understand the basics of how standby letters of credit (SLOCs) work. Yet, I wrote this article to explain to those who think SLOC transactions are some magical license to print money. Spoiler alert: They’re not.  SLOCs aren’t a shortcut to collect a 1% commission just because you “know someone who can receive unlimited amounts of SLOC and issue ‘BPUs’” (all of which is fake, by the way). Let’s get into how SLOCs actually work.

Securing a Letter of Credit (LC): The Real Process

A letter of credit (LC) is a financial instrument issued by a bank guaranteeing that a seller will receive payment as long as specific delivery conditions are met. For those seriously pursuing trade or project finance, here’s how the process works—and why amateurs demanding “no fees upfront” are wasting everyone's time.

Step-by-Step Process for Securing an LC

1. Client Due Diligence & Underwriting: The bank performs a comprehensive evaluation of the applicant’s financial standing, creditworthiness, and the underlying deal.
   Collateral Requirements: Banks require cash, liquid assets, or other acceptable collateral (often between 100-110% of the LC amount) to mitigate risks.
   Underwriting Fees: This covers the administrative effort of validating the transaction and ensuring compliance with regulations.
2. Submission of Terms & Conditions: The bank drafts the LC, including the applicant’s obligations, the documentation requirements, and the conditions under which payment will be made.
3. Issuance: After fees are paid and collateral is secured, the bank issues the LC in favor of the seller/beneficiary.
   Costs: Issuance fees typically range from 0.5-3% of the LC value annually, depending on the risk profile and tenor.
4. Utilization: Upon fulfillment of the agreed terms (delivery of goods or services), the beneficiary presents compliant documents, and the bank releases payment.

Why “No Upfront Fees” Requests Are Nonsense

1. Underwriting Costs Are Real: Banks don’t gamble. An LC requires substantial underwriting work, including legal reviews, documentation, and risk assessments. Expecting a bank to do this for free shows ignorance of financial basics.
2. Collateral Is Mandatory: Banks need security to back the LC. Without collateral, the bank would assume 100% of the credit risk. No collateral? No deal.
3. Opportunity Costs for Lenders
   When a bank or equity partner ties up capital for an LC, they sacrifice potential returns on other investments (e.g., 5-8% in corporate bonds or 15%+ in private equity deals). They’re not parking money for a pipe dream.

The Myth of the “Discounted SLOC”

Here’s where the clowns come in. The fantasy is that an SLOC can be issued at a fraction of its face value (e.g., 30%), monetized, and then written off.

Reality Check: If someone could “monetize” or “return 30%” without contributing to underwriting or issuance, it would be akin to expecting free money in exchange for vague promises. In finance, that’s a scam, not a business model.

Why 1-5% Upfront is Non-Negotiable

1. Professional Time Costs Money: Banks, lawyers, and underwriters are not charities. The 1-5% covers the real-world expenses of structuring the LC.
2. Filtering Serious Clients: Requiring upfront fees eliminates time-wasters who’ve never closed a deal. Serious players understand that financing involves skin in the game.
3. Risk Pricing: Issuers of LCs price risk. If you’re not prepared to pay the underwriting and issuance fees, you’re signaling to the lender that you’re uncommitted or incapable of completing the deal.

LCs are valuable, complex instruments requiring collateral, fees, and serious underwriting work.
If someone expects an SLOC with no upfront fees, they don’t understand finance or are delusional about what banks and lenders do.

The opportunity cost of capital ensures that no lender ties up resources for free.  Lenders could make a risk-free return elsewhere rather than entertain fantasies. Don’t waste time with unrealistic expectations. If you can’t allocate at least 1-5% of the LC’s face value for origination, the conversation is dead in the water.

For real businesses and serious transactions, understanding these principles is non-negotiable. For clowns, well, the circus is elsewhere.

Additional Resources:

We have written several articles debunking misinformation and clarifying how SBLC operations work:

• How SBLC Monetization Actually Functions   
• Why SBLC/BG Leasing/Purchase is Typically a Scam
• Standby Letter of Credit (Video Tutorial): How It Works

Still have questions? Book a consultation with us, or request a quote.