SBLC is quite different from any other type of letter of credit, this is because the fund placed in it is never really expected to be touched as it stands in as a last resort. Basically, one can benefit from the SBLC monetization if you are able to get a loan provider, that will be willing to provide you with a discount or a monetizer who will bear the cost of the SBLC and pay you with a nonrefundable loan. It is an easy two-way procedure. Also, if you find a company that would like to invest in your bank instrument and is ready to aid your business, that money will benefit you in the case of bankruptcy.
To get the SBLC from a top-rated bank the applicant pays 10-12% of the value of the instrument to the bank and this is to last for a year. If the applicant finds a loan provider or monetizer to take over the SBLC, the monetizer pays the applicant a 40-50% non-refundable loan.
One of the biggest benefits of SBLC monetization is that it helps eliminate the embarrassment and risk involved if the applicant can’t pay for the services or goods provided as at when due. Once there is a letter of credit the exporter is assured that he will receive his payment thereby creating room for smooth trading.
To apply for the SBLC there are providers who do not require an upfront payment, all you need to have as an applicant is the 10-12% value of the instrument in the requesting account and a bank payment undertaking as requested by the provider, after which the agreement with the loan provider who will take over the SBLC and also pay the applicant comes in.
For some banks, a loan provider is not necessarily required. Once the applicant has paid the stipulated fee, the bank provides the SBLC with a monetizer. For some of these nonrated banks, the instrument fees are usually lesser.
The standby letter an applicant gets from the bank showcases a good relationship with the bank. It means the bank trusts the applicant as they can only issue one when all checks and necessary criteria have been met. This credibility is definitely good for any business.