Standby Letters of Credit

A flexible tool for a variety of situations

Get payment assurance with standby letters of credit

When you encounter a business transaction that requires assurance that your payment will be made, a standby letter of credit, or SBLC, may be what you need. An SBLC doesn't have to be related to the purchase of goods or services. It's based on a contractual agreement or other obligation and is drawn upon by the beneficiary only when the applicant fails to meet the underlying obligation.

Contact us about Standby Letters of Credit , Opens in a new tab
Let's start a conversation Contact us about Standby Letters of Credit , Opens in a new tab

SBLC Benefits
Advantages of standby letters of credit

Certify

Certify creditworthiness in domestic as well as foreign transactions.

Simplify

Eliminate the need for cash deposits or more complicated guarantees, such as bid and performance bonds.

Validate

Establish creditworthiness of US-based parent companies to subsidiaries overseas.

Save

Reduce banking costs because SBLCs are less expensive than bonding and other credit facilities.

Guarantee

Ensure that international transactions are properly structured.

Standby Letters of Credit FAQ
People often ask us

An SBLC is a legal guarantee issued by a bank on behalf of a client company, fund or portfolio company that serves as a commitment in lieu of a cash prepayment, surety bond, deposit or escrow account for a financial or contractual obligation. The SBLC promises payment to a beneficiary, such as a landlord, vendor, customer or lender, if the company fails to fulfill that obligation.

An SBLC is often used in lease agreements, contract bidding processes, real estate transactions, import and export business, and other scenarios where a guarantee of performance or payment is required.

SBLCs are widely accepted in both domestic and international trade and finance as a reliable form of payment or performance guarantee.

An SBLC works as a bank guarantee for a seller's, or beneficiary's, payment obligation to a buyer, or applicant. It's not used for regular payment but serves as a backup—or standby—that the bank will pay if the seller fails to fulfill their contractual obligation. The beneficiary makes a claim to the bank, presenting specific documents to get paid if the seller defaults, to ensure the contract is fulfilled or the payment is made.

SBLCs may be used when a company has a financial or performance obligation to meet and the other party requires a guarantee that the company will fulfill its obligation. For example, a lessor may require a lessee to provide a letter of credit in the event that he fails to pay rent.

A commercial letter of credit is typically used in trade transactions to ensure payment to suppliers. Payment is made by the bank.

A standby letter of credit is more flexible and can be used in various situations beyond trade, including collateralization, escrow, bond, performance and contract guarantees and assurances. An SBLC is only paid out if the contract isn't fulfilled.

An SBLC is drawn when the beneficiary submits a demand for payment to the issuing bank. The bank then verifies the claim against the SBLC terms and pays the beneficiary if the claim is valid. The applicant is obligated to reimburse the bank because the SBLC acts as a guarantee for performance or financial obligation that the applicant failed to meet.

Insights
Expand your international banking knowledge

International Banking

Make FX hedging part of your strategy

Learn how business can take greater control over currency exposure and strengthen financial performance.
Well-designed repatriation frameworks that include FX hedging can transform this unavoidable exposure into a managed process that protects earnings, supports capital planning and demonstrates disciplined financial stewardship.
International Banking

Consider integrating FX budget rates into your FP&A process

Discover the advantages of incorporating FX budget rates into your financial planning and analysis.
Foreign exchange budget rates are the starting point of FX risk management.
International Banking

Controlling global operating expenses

Navigate the nuances of global operating expenses with our FX risk advisory briefing on the state currency option prices and cycles.
Unlike forward contracts, options can offer protection from rising foreign operating expenses due to unexpected currency shifts while allowing companies to benefit if currency prices improve.
explore more international banking insights

Normal credit approval applies.

First-Citizens Bank & Trust Company, as well as its divisions, subsidiaries, and affiliates (together, First Citizens), are US financial institutions and provide products and services to non-US clients on a cross-border basis from the United States of America. First Citizens is not licensed or regulated as a bank or any other type of financial institution outside of the United States of America. Please review our International Disclosures for more information.

Links to third-party websites may have a privacy policy different from First Citizens Bank and may provide less security than this website. First Citizens Bank and its affiliates are not responsible for the products, services, and content on any third-party website.

Third parties mentioned are not affiliated with First-Citizens Bank & Trust Company.

Bank deposit products are offered by First-Citizens Bank. Member FDIC and an Equal Housing Lender. icon: sys-ehl.

NMLSR ID 503941