Procedure to Secure a Standby Letter of Credit (SBLC) Through Alternative Lenders

A Standby Letter of Credit (SBLC) is a crucial financial instrument for businesses engaged in high-value transactions, ensuring that obligations are met even if a counterparty defaults. While traditional banks have rigid requirements and lengthy approval processes, alternative lenders provide a more flexible route—if the deal is structured correctly and the applicant meets the necessary financial standards.

Step 1: Underwriting & Deal Risk Assessment

Alternative lenders don’t issue SBLCs based on just a promise—they assess the risk, collateral, and transaction structure before approval. The underwriting process involves:

• Evaluating the applicant’s financial standing – Lenders analyze cash flow, assets, and credit history.
• Reviewing the nature of the underlying transaction – Commodity trades, real estate deals, or import/export transactions must be clearly documented.
• Assessing collateral or counter-guarantees – SBLCs require financial backing, whether in cash, marketable securities, or alternative assets.

If a deal lacks collateral or relies on unverifiable sources of repayment, it won’t pass underwriting.

Step 2: Origination Fees & Cost Structure

Obtaining an SBLC isn’t free. Alternative lenders charge:

• Origination fees (typically 1% - 3% of the SBLC face value) – Paid upfront to initiate underwriting.
• Issuance fees (0.75% - 2.5% annually) – Charged by the issuing bank.
• Collateral requirements – Most lenders require 30% - 100% cash or assets to secure the instrument.

Beware of anyone offering an SBLC with “no upfront cost.” Underwriting, risk assessment, and issuance all come at a price.

Step 3: Issuance & Timeline

Once underwriting is approved and fees are settled, the lender instructs a regulated financial institution (bank or credit provider) to issue the SBLC. The process typically takes:

• 7 to 21 days for standard deals.
• 30 to 45 days for larger or more complex transactions.

Delays usually arise when applicants fail to provide complete documentation, verifiable collateral, or a clear transaction structure.

Final Takeaway: Preparation is Everything

Securing an SBLC through alternative lenders is faster than traditional banking, but only for applicants with a properly structured deal, verifiable financials, and realistic expectations. Those who think they can secure a multi-million-dollar credit instrument without capital, collateral, or underwriting fees are wasting their time.

If you need an SBLC, be ready to pay for underwriting, provide real collateral, and move fast when approvals come through.