A Standby Letter of Credit (SBLC) is one of the most common payment security instruments in international commodity trade. It is issued by the buyer's bank as a guarantee that the seller will receive payment even if the buyer defaults.
How an SBLC Works — Step by Step
- Buyer applies to their bank to issue an SBLC in favour of the seller
- Bank issues the SBLC via SWIFT MT760 to the seller's bank
- Seller receives the SBLC and verifies it with their bank
- Goods are shipped under the agreed contract terms
- If buyer pays normally — SBLC expires unused
- If buyer defaults — seller presents compliant documents to the issuing bank and draws the SBLC
SBLC vs. Documentary Letter of Credit (DLC)
| Feature | SBLC | DLC |
|---|---|---|
| Primary purpose | Guarantee (fallback) | Primary payment method |
| Triggered by | Buyer default | Shipping documents (BL, invoice) |
| SWIFT format | MT760 | MT700 |
| Common in petroleum? | Yes — especially first deals | Yes — standard for repeat trade |
| Cost to buyer | 1–3% of face value per year | 0.5–2% of transaction value |
Key SBLC Terms to Know
- Irrevocable SBLC — cannot be cancelled or amended without beneficiary (seller) consent
- Transferable SBLC — can be transferred to a third party (e.g., a supplier in back-to-back deals)
- Confirmed SBLC — a second bank adds its confirmation, giving the seller double-bank security
- Performance SBLC — guarantees the seller delivers product, not just that the buyer pays
SBLC Scams in Commodity Trade
Common SBLC fraud patterns include: fake MT760 messages, "SBLC leasing" scams where victims pay fees for a worthless document, and fake bank confirmation letters. Always verify with your bank's trade finance desk before accepting any SBLC as security.
Frequently Asked Questions
- What is an SBLC?
An SBLC (Standby Letter of Credit) is a guarantee issued by a bank on behalf of a buyer. If the buyer fails to pay for the goods, the seller can draw on the SBLC to receive payment directly from the bank.
- What is the difference between SBLC and DLC?
A Documentary Letter of Credit (DLC) is the primary payment method triggered by shipping documents. An SBLC is a standby guarantee used only if the buyer defaults — it is a secondary payment security.
- How long does it take to issue an SBLC?
Most prime banks issue SBLCs within 3–5 business days of receiving the buyer's application and margin deposit. Swift MT760 is the standard transmission format.
- What is Swift MT760?
MT760 is the SWIFT message type used to issue an SBLC. When you see 'MT760 SBLC' in a commodity contract, it means the letter of credit will be transmitted via the SWIFT banking network.