This keeps coming up because the internet rewards confident nonsense. The claim is simple: someone can arrange huge Letters of Credit or Standby Letters of Credit at no cost, with payment “later” after a message is sent. That story collapses under basic underwriting. Banks do not issue contingent liabilities for free, and credible issuers do not immobilize liquidity without a defined business purpose, defined risk controls, and a clear economic return.
A Letter of Credit or an SBLC is not a free asset. It is a credit exposure that consumes balance sheet, triggers compliance obligations, and requires collateral, covenants, or a clean credit profile. If someone claims the opposite, they either do not understand trade finance or they are selling you a fantasy.
The misconception comes from treating an SBLC like a coupon you can print and hand around. In reality, an SBLC is a bank’s promise to pay if stated conditions are met. That promise is a liability for the issuing bank and a capital event for the applicant. It is priced, controlled, documented, and monitored. There is no institutional reason to issue a large SBLC “just to see what happens later.”
Even where an applicant uses a facility or line of credit, the facility has conditions. There are covenants, usage restrictions, reporting requirements, and limits on who can benefit from the instrument and for what purpose. These instruments are not transferable toys. They are governed by rules, internal policies, and compliance screening.
Issuing an SBLC ties up real capacity. If the applicant posts cash collateral, that cash is restricted and carries opportunity cost. If the applicant uses a credit facility, that facility capacity is consumed and priced. Either way, the issuer is taking risk and giving away balance sheet. No rational party with serious liquidity does that for a one-sided payoff, especially when the proposed “return” is smaller than the risk, the cost of capital, and the compliance burden.
One simple lens:
If the only purpose of the SBLC is to “monetize” it, the transaction has no underlying commercial need. That is not how reputable banks and trade finance counterparties operate.
Legitimate issuance is tied to a real obligation that a third party needs comfort on. For an SBLC, that is often performance, payment, bid security, warranty obligations, or lease and utility guarantees. For a documentary Letter of Credit, it is commonly payment assurance for cross-border procurement where the seller requires bank-backed payment against compliant shipping documents.
A sponsor developing an energy or infrastructure project may need an SBLC as a performance guarantee to satisfy lenders, EPC contractors, grid operators, or offtakers. The sponsor submits a business case, project documentation, and collateral support. The bank underwrites the sponsor and the transaction purpose, then issues the SBLC with strict usage terms aligned to the project.
A buyer importing commodities may use a documentary Letter of Credit to provide payment assurance to the seller. The bank issues the LC against credit support, with documentary conditions tied to shipment and compliance. The LC is linked to an identifiable purchase contract and a definable flow of goods and documents.
Banks do not start with the SWIFT message. They start with credit and compliance. Expect KYC and AML screening, sanctions screening, purpose and documentary review, and a credit decision based on collateral, guarantees, financials, and the specific transaction risk. Pricing and fees vary by bank and risk profile, but the principle stays the same: issuance is not free, and it is not done without a defensible business purpose and documented controls.
You do not need a long debate to filter bad narratives. If the pitch relies on “free issuance,” “payment only after a message,” “huge size with no collateral,” or vague promises of unnamed counterparties, you are not looking at a bankable trade finance request. You are looking at a story built to bypass underwriting. Reputable issuance starts with a real transaction, a real purpose, and a real credit and compliance file.
Financely advises clients on Letters of Credit and SBLC issuance for legitimate trade and project use cases. We help structure the request, align instrument wording to the transaction, prepare the lender-grade package, and coordinate the process through appropriate counterparties and, where required, regulated execution partners. The objective is to reduce friction by presenting a file that can be underwritten, not a narrative that collapses during review.
Share the use case, underlying contract or project documentation, target instrument amount and tenor, and your credit support plan. We will revert with the underwriting checklist and the process steps.
Contact FinancelySometimes, but only if the applicant has strong credit and the bank is willing to extend unsecured contingent exposure. Most applicants should expect collateral, cash margin, or a committed facility, especially at larger sizes or higher-risk jurisdictions.
Not in legitimate banking practice. An SBLC is issued to support a defined obligation, such as performance, payment, or security. When there is no underlying obligation, reputable counterparties typically decline.
Banks underwrite the applicant’s credit strength, the purpose of the instrument, the beneficiary and jurisdiction risk, the documentary terms, collateral and covenants, and the compliance profile including sanctions and AML controls.
Pricing varies by bank, credit quality, collateralization, and tenor. Documentary Letters of Credit commonly have issuance and negotiation related fees. SBLCs commonly have annual commissions and fees tied to tenor and risk. Any credible quote will be issued only after underwriting.
Provide a clean package early. That includes the underlying contract or project documents, the required instrument wording, the requested amount and tenor, corporate documents, financials, and a clear collateral or credit support plan.
Disclaimer: This page is for general information only and does not constitute legal, tax, investment, or regulatory advice. Financely is not a bank and does not provide loans directly. Financely operates on a best-efforts basis as an arranger and advisor through third-party capital providers and, where required, regulated execution partners. No financing is guaranteed. Any terms are subject to diligence, lender approvals, definitive documentation, and compliance screening.
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Letters of Credit, Standby LCs, Confirmations, Receivables Finance, and Inventory Lines with control.
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Financely Inc. (“Financely”) provides corporate-finance advice and is wholly owned by Aurora Bay Trust, a trust formed under Bahamian law, together with its authorized affiliates. Depending on deal structure, jurisdiction, and local rules, engagements may be carried out through Financely Group LLC, a non-deposit-taking, non-banking financial company; Ashford Capital Advisory LLC; or another related entity.
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