How To Get A Liquidity Provider For Your Standby Letter Of Credit
The Standby Letter of Credit is a bank instrument used in international trade.
It serves as a guarantee to the beneficiary, that any obligation as described in the SBLC will be carried out by the issuing bank.
In most cases, when an SBLC transaction is initiated, there is is direct value attached to it, in the form of an underlying collateral, usually USD or EUR.
The buyer or transferee of the financial instrument needs to have a third party liquidity provider attached to it in order for the SBLC to become acceptable and credible.
This means that if you are going into an SBLC transaction, you need a liquidity provider who would agree to show support for your transaction and have them vouch for your credibility before the bank or financial institution can take actions on your request.
The Importance Of Backing
The importance of a liquidity provider to back your Standby Letter of Credit
It is vital that you choose a good liquidity provider for your SBLC.
The SBLC will not be valid without the backing of a good liquidity provider.
Therefore, it is important that you select a good liquidity provider for your SBLC.
The only way to access liquidity provider is through investment banks or investment banking advisory firms, like Financely Group.
Because providing liquidity for a trade or project finance qualifies as debt funding.
Usually, the investors willing to commit capital for this type of transaction require a well structured security offering, done by a credible investment bank, so that they can subscribe to it and safely commit their capital.
Avoid Non-Rated Banks
Non rated banks are not ‘’banks’’, they are NBFCs, non bank financial companies. In many cases, their collaterals are worthless.
They simply capitalize on their SWIFT messaging facility, charging 30,000 USD to send worthless SWIFT messages.
For the same amount of money or double that, you can structure a legitimate debt offering and attract real liquidity.
Depending on the quality of your project and risk profile, you could even raise hundreds of millions.
We work only with banks such as China Construction Bank, JPMorgan Chase when it comes to financing our clients.
How It Works
You can think of it as being like the bridge in between two transactions when they have difficulty accessing capital.
For example if you require 10,000,000 USD for a petroleum trade but do not have the funds yourself. Your investment banker will structure a debt offering and underwrite it.
An institutional investor, depending on his risk tolerance, will commit 10,000,000 USD at for example 4.5% interest rate per annum.
This commitment is never free because there is an opportunity cost for the investor (meaning he could have invested elsewhere and made money).
Now your SPV has 10,000,000 USD to back any SBLC or guarantee issued by it. You can trade, and by the end of the term, repay the interest rate.
Where Can I Get A Liquidity Provider?
•You can get a liquidity provider from a bank or a financial institution.
•You can also get one from a private individual.
•Through an investment banking advisory firm like Financely Group.
How Much Does Sourcing A Liquidity Provider SBLC Cost?
Sourcing a liquidity provider for an SBLC will cost between 50,000 USD and upwards of 2,000,000 USD for larger projects upfront as a retainer.
Afterwards, there is a 2% success fee, and about 3% to 5% interest rate per annum on the utilised line of credit.
Having a liquidity provider to back your SBLC will give it more credibility and will make it more accepted. This means that you can get a lower interest rate, a longer term and even a higher guarantee from the issuing bank.
If you are in need of liquidity for your business, schedule a consultation with us today.
Your SBLC will be backed by our strong liquidity providers and will be accepted easily. In case you need to get an SBLC or other bank guarantees, do not hesitate to contact us immediately.
