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.

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.

Understanding SBLC Costs:

While upfront fees are a part of the SBLC process, it's crucial to understand the specifics:

• Collateral Requirement: Sufficient collateral, readily available with the issuing bank, is non-negotiable. While favorable terms might be offered in such situations, the fundamental need for collateral remains.
• Bank Issuing Fees: Administrative costs associated with processing, due diligence, and SBLC establishment.
• Monitoring Fees: Ongoing fees for the bank to monitor your financial health and the underlying transaction throughout the SBLC's validity period.
• Performance Bond (Potential): An additional layer of security depending on the transaction's specific risks, essentially acting as a financial guarantee in case of default.

Two Common Acquisition Scenarios:

Scenario 1: Sufficient Collateral Available with the Issuing Bank

In this scenario, you already possess the required collateral for the SBLC in the form of readily available cash or assets held with the issuing bank. This simplifies the process in some ways but doesn't eliminate costs entirely. Here's a breakdown:

Collateral:

• You already have the required collateral, so you avoid the costs associated with raising it through debt or equity financing.
• However, the bank might require the collateral to be held in a specific form, like a blocked account, which restricts your immediate access to those funds.

Fees:

• Issuing Fees: These cover the bank's administrative costs for processing the application, due diligence, and establishing the SBLC. While these might be slightly lower due to your existing relationship and readily available collateral, they remain essential.
• Monitoring Fees: Throughout the SBLC validity period, the bank monitors your financial health and the underlying transaction. These ongoing fees reflect the risk management involved, and their level might be affected by factors like the SBLC amount and transaction complexity.
• Performance Bond (Potential): Depending on the specific transaction and associated risks, the bank might require a performance bond as an additional layer of security. This essentially acts as a financial guarantee in case you fail to fulfill your contractual obligations, and its cost will depend on the bond amount and risk factors.

Overall:

While having readily available collateral streamlines the process, upfront costs in the form of bank fees and potential performance bond costs still exist. Remember, even with existing collateral, the bank must assess your financial health and the legitimacy of the underlying transaction before issuing the SBLC.

Scenario 2: Raising Collateral through Debt or Equity Financing

If you lack readily available collateral, acquiring an SBLC requires additional steps and associated costs:

Raising Collateral:

• Debt Financing: You acquire a loan from a bank or other financial institution, adding interest payments to your financial burden. The interest rate will depend on your creditworthiness, loan amount, and repayment terms.
• Equity Financing: Selling a portion of your company's ownership raises capital but dilutes your control and future profits. Valuation and legal fees are also associated with this option.

SBLC Application Process:

Once you have the collateral, the SBLC application process and associated fees are similar to Scenario 1. Remember, even with acquired collateral, you need to demonstrate financial stability and a legitimate underlying transaction.

Overall:

This scenario involves additional costs from raising collateral alongside the bank fees associated with the SBLC itself. The total cost ultimately depends on your chosen financing method, interest rates, potential dilution through equity sales, and the specific SBLC requirements.

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.