Standby letter of credit (SBLC) is a process involving monetizing of bank instruments such as BG’s, LC’s or SKR’s with an aim to fund projects. The method is on the rise. Lending from traditional institutions has been practiced widely in the past. At present, it has virtually come to a stand-still. Monetizing of instruments has almost replaced it for good reasons.
SBLC is very popular as it does not require any down payments, traditional credit requirements, or asset requirements usually associated with conventional method of lending or funding. However, the approval process isn’t easy. The requirements are strict and include a satisfactory compliance report related to laws of International Money and Homeland Security Laundering.
This kind of funding involves conversion of a secured instrument sponsored by cash, secured asset, secured account into legal tender. In most cases, the cash backed, or secured account or asset is interned in a trust or a different account wherein the holder is not able to recover additional funds according to the account agreement.
In the past, hospitality financing was considered a very monotonous and challenging industry. However, the process was attainable. However, this is not the case today. Hospitality financing has become almost impossible for those looking for remodeling, new purchases, construction, or refinancing.
In case, you own a hospitality property, there are increased chances of funding approval. However, this depends on performance through a period of 3-5 years. Since there are no performance requisites in case of projects related to hospitality, SBLC funding or instrument monetizing is the solution. Here, the performance is purely based on instrument guarantee than the guarantee of property.
It also stands correct for cases where residential developments halted in the middle of construction due to failure of construction on credit lines arranged earlier. Commercial developments can also benefit from this funding method because no “anchor” or tenant rolls are required. Financing of alternative energy project is specifically feasible for bank instrument monetization or SBLC funding. Monetizing may also be a feasible solution to community economic expansion, development of housing and employment and debt consolidation for organizations.
A Word of Caution
Fraud is on the rise in this industry. Hence, it is important that instruments are issued by reputed banks and SBLC BG provider. Monetization of leased instruments takes stated written permission of the instrument holder and issuing bank. The permission should include an agreement between all parties combined with the stated information about the objective of using the instrument. Post approval, a contract must also be issued to the customer, detailing all terms and conditions related to monetizing and instruments.
As a final point, the fees must be subtracted from the proceeds during the process of monetizing to avoid any upfront costs. In case of international arranging of instruments, it leads to escrowed fees. MT 103/23 will meet your requirements. Once all elements are in place, instrument monetization makes for a very safe alternative to traditional financing.