Posts Tagged ‘stand by letter of credit’

Stand By Letter of Credit (SBLC)/Bank Guarantee (BG) Program

(SBLC Financing)

A Stand-By Letter of Credit (SBLC) is an assurance that your company has the financial resources to perform as agreed under contract. The issuing Bank essentially substitutes its credit standing for that of your company in order to facilitate the contract. Stand-By letters of Credit are legal documents that support contractual agreements between two parties. The standbys are concerned only with the contractual agreement you have made with another party and are payable only when the appropriate documentation as outlined in the letter of credit is presented by the beneficiary. If the customer defaults, the beneficiary may draw funds against the letter of credit as penalties or as payments, whichever the terms of the credit provide.

STAND-BY LETTER OF CREDIT PROGRAM SUMMARY

REAL PROPERTY STAND-BY LETTER OF CREDIT FINANCING PROGRAM

1. Purchase of Standby Letter of Credit (SBLC), generally at a $20,000,000 face value. SBLC has a term of one year plus one day (see below for SBLC Purchase Program features).
2. Transfer SBLC to Lender, together with 15 yr interest only Note, interest rate of LIBOR +2%.
3. Lender funds 95% of face value of SBLC ($19,000,000), less 10% of face value in fees (all fees included), so borrower receives 85% of face value of SBLC.

Clients can use Stand-by Letters of Credit for many reasons such as:

• Leverage Funding for Large Commercial Projects
• Funding a Trading Platform
• Credit Enhancement
• Blocked Funds
• Qualify for Financing
• Net Worth Requirements
• Providing Evidence of Proof of Funds
• Commodities / Petroleum Transactions
• To provide assurances of our Client’s ability to perform under the terms of a contract
• To fulfill bid-bond and performance-bond requirements
• To help secure third-party financing

General terms and conditions:

SBLC 85% funded amount must be paid in one year and one day. May be extended up to a total of five years at a cost of 8% for second year, 6% for third year, 4% for fourth year or 2% for fifth year.

Needs List and Procedures:

First Capital Funding Corporation utilizes these SBLC instruments to collateralize commercial property loans.

Letter of Credit Request Procedure:

A request for a Letter of Credit is made from a client directly or may be referred to FCFC. FCFC requires all the documentation and information indicated below.

FCFC will issue a Letter of Engagement to the client, which discloses the points associated with this transaction, which is separate from the Lenders fees. The fee is generally 2 points. Once the letter of Engagement is executed (signed) and returned to FCFC, FCFC will proceed with the request. (Up to this point no monies have been collected unless indicated on Letter of Engagement.

Information Required for an SBLC Request:

• Executive Summary describing project and use of funds.
• Proof of Funds for SBLC request: (need to see a minimum of 10% of SBLC request)
• Bank Statement (recent within 30 days)
• Bank Letterhead indicating the account holder, account number and amount in that account that is available and accessible funds for our client (an escrow letter alone is not sufficient.)
• In the event there are silent partners/ investors that are not principals, proof of funds from them may be used as long as a paper trail evidencing that the principals have access and is permissible to use these funds for the specific transaction. This must be noted in writing from the account holder.

Proof of Funds for commitment fee for lender: (need to see where the commitment fee is coming from if different than proof of funds for SBLC)

• Bank Statement (recent within 30 days)
• Bank Letterhead indicating the account older, account number and amount in that account that is available and accessible funds for our client (an escrow letter alone is not sufficient)
• Corporate ID (Articles of Incorporation or Articles of Organization indicating principals along with Corporate ID#)
• Drivers License (for all principals)
• Passports for International deals (for all principals)
• Name of Corporation, Address, Phone#, Fax#, and email address along with names of all principals indicating the main contact person.
• Referral Name, Address, Phone#, Fax#, and email address
• Sources and Uses (to indicate the breakout)

Note: In the event you have multiple LC requests, they should be sent independently. Executive Summaries will differ.

Once the above documentation has been received it will be forwarded to the SBLC provider. The SBLC provider will then process the request and issue an SBLC draft and send to FCFC within 3-5 business days depending on the complexity of the request and documentation received.

When FCFC receives the SBLC draft, we then will forward a copy to the lender along with the above noted documents (as indicated above required docs for SBLC)

Lender will notify FCFC of their decision, and if approved a commitment letter will be generated and forwarded  to FCFC to forward onto the client. All terms and conditions of the loan along with the amount of the commitment fee will be outlined in the commitment letter. The dollar amount of the commitment fee will depend on the loan amount. The commitment fee will be required at the time the borrower signs the commitment letter. The Lender’s bank wiring instructions will be included.

The commitment letter will be signed by the client and returned to FCFC who will then forward the information to the lender.

Commitment fees outline in the commitment letter will be wired to the designated account simultaneously with the commitment letter.

Once the signed commitment fee is received by the Lender, the Lender will issue a letter outlining all bank  and swift information which confirms their receipt of the commitment letter and a commitment fee. This letter will be sent within 3-5 business days (original) via DHL/FedEx and also faxed the day issued.

Once the letter is received, the SBLC issuer is notified to swift the collateral (the Official SBLC) they then will fund via SWIFT within 3-5 business days.  The Stand-by Letter of Credit Program process above is a general rule and will vary depending on the transaction.

Non-Leased Cash backed SBLC or BG

There are instances when a client requires a non-leased cash backed Bank Guarantee or SBLC to be able to borrow against it at higher levels.  We can provide that in amounts of 10 MM to 10 Billion.  Make sure you mention this particular instrument when you call or contact us.

This process is excellent, because:

• You have real instrument, it is not a leased one
• Do not require to have the instrument fees in a bank account, they are simply deducted from the requested amount
• Your bank will be the beneficiary
• You can use the instrument as credit enhancement
• This is a third party transaction, therefore you can tell your bank what to do, not the other way round

After all parties have signed the “hard” contracts the bank of the investor will talk to your bank.  They can arrange for a MT199 (stating that the investor bank is RWA to send) Only after that your bank prepares the MT103/23 (not sending it) Then the bank to bank negotiation starts with MT799 and MT760.

From start to finish this process takes about 3 weeks.

* IMPORTANT:  You will be checked out thoroughly so make sure that you are “real” and able to pay for the fees before applying.  And they only work with A and AA rated banks.

The fees on this program are higher than the leased SBLC/BG however, you can obtain the desired instrument without any cash, only a viable project and A and AA rated bank

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Note: All Accounts require strict compliance with International. Money Laundering Regulations and the US Patriot Act.

This is a question that usually starts the conversation for many clients seeking a standby letter of credit (or SBLC). But first lets start with the wiki definition of a stand by letter of credit.

Wikipedia says: A standard, commercial letter of credit is a document issued mostly by a financial institution, used primarily in trade finance, which usually provides an irrevocable payment undertaking.

The key word being financial institution as the financial institution or bank issuing the stand by letter of credit (SBLC).  The cost of the leasing for this instrument is determined by the bank.  This cost for leasing a block of money in the name of the client  ranges between 5-12%.  Sometimes more and sometimes less.

As with any transaction there is a cost of placing the request with the bank or institution by financial professional, intermediary, financier or broker.  The cost ranges between 1-5% of the stand by letter of credit amount and it is normally paid up front together with the bank lease fee.  This amount is placed in escrow with the Bank’s attorney or escrow service pending the final issuance of the instrument.

Due to its ease and the way transactions are structured, standby letter credit transactions are often the target for scammers who pose as intermediaries asking for the upfront fee without ever intending to place the deal anywhere.

These scammers operate from Africa and some European countries looking to swindle american clients posing as an American company.

The same goes forAmerican scammers who look to take advantage off European clients by requesting an up front fee.

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To get more information about obtaining a stand by letter of credit (SBLC) or to submit a request please visit First Capital Funding Corporation SBLC page here.