Glossary / SBLC
SBLC — explained
An SBLC (Standby Letter of Credit) is a bank guarantee under which the bank undertakes to pay the beneficiary if the applicant fails to fulfil its contractual obligation; unlike a commercial letter of credit, it only comes into play on default and is not a primary means of payment.
An SBLC is generally issued subject to the International Standby Practices (ISP98) that the International Chamber of Commerce (ICC) brought into force in 1999; some banks may also refer to the UCP 600 rules that govern commercial letters of credit. The bank usually issues and advises an SBLC via SWIFT MT760 (the inter-bank guarantee message). Under normal conditions it is never called on — it is drawn only by the beneficiary if the applicant fails to fulfil its obligation.
Despite having "letter of credit" in its name, an SBLC works more like a bank guarantee than a commercial letter of credit in practice: it is not a payment channel through which goods or services are routinely settled, but a security mechanism invoked if one party breaches the contract.
There is a well-known form of abuse of SBLCs in international trade: offers built around the claim that SBLCs can be "leased" or bought and sold directly as an investment/cash instrument. A genuine SBLC is a commitment a bank makes to a specific beneficiary for a specific transaction; an SBLC offered as something independently leasable, transferable, or promising a fixed return is not considered credible.
When You Encounter It
In the course of letter-of-credit and banking transactions, an SBLC comes up most often when the parties do not know each other well enough, or when the risk of non-performance is seen as high: when one party asks for a "payment guarantee" or "performance guarantee", the counterparty's bank issues an SBLC. Settlement of the goods is not expected to run directly through this document — the SBLC sits in the background and, if the transaction proceeds normally, is never called on at all.
Caution is needed when an SBLC offer is presented as 'proof of payment' or 'confirmation of funds' — particularly in soft-offer correspondence common in brokerage chains (alongside documents such as ICPO or NCNDA); an SBLC on its own does not show that a payment has actually been made, it is a conditional undertaking. A genuine SBLC is verified by contacting the bank alleged to have issued it directly.
What It Doesn't Cover
- An SBLC is never used as long as the applicant fulfils its obligation; the routine, direct settlement of goods or services through an SBLC is not expected — that is the function of a commercial letter of credit (L/C).
- An SBLC is not an instrument that can be leased, transferred, or that generates an independent investment return; offers made along these lines are recognised internationally as a recurring fraud pattern.
Often Confused With
| Comparison | Difference |
|---|---|
| SBLC vs Letter of Credit (Commercial L/C) | A commercial letter of credit (L/C) operates under the UCP 600 rules and is a primary means of payment that normally comes into play once the seller presents conforming documents. An SBLC, by contrast, is generally subject to ISP98 and comes into play only as a security/guarantee if the applicant fails to fulfil its obligation — it is never used in the normal course of business. |
Frequently Asked Questions
What is an SBLC?+
An SBLC (Standby Letter of Credit) is a bank guarantee under which the bank undertakes to pay the beneficiary if the applicant fails to fulfil its contractual obligation. It is not used under normal conditions — it is drawn only on default.
What is the difference between an SBLC and a letter of credit (L/C)?+
The key difference is that a commercial letter of credit is a primary means of payment that comes into play under normal conditions, while an SBLC is a security that comes into play only if the applicant fails to fulfil its obligation; a commercial letter of credit is subject to UCP 600, an SBLC is generally subject to ISP98.
What is SBLC MT760?+
MT760 is the SWIFT message type banks use to issue and advise an SBLC (and letters of guarantee) — it is the technical format used for inter-bank communication, not the instrument itself. The existence of an MT760 message alone does not prove the SBLC is valid; verification is done by contacting the bank alleged to have sent it directly.
How does payment under an SBLC work?+
An SBLC is not a method of payment, it is a security. The beneficiary presents the bank with documents (usually a demand/statement) showing that the applicant has failed to fulfil its obligation; the bank examines this presentation against the SBLC terms and pays accordingly. It is not used for the routine settlement of goods or services.
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Related Terms
Where This Term Comes Up in Our Work
SBLC is one of the documents we track in our letter of credit and banking operations service.
Letter of Credit and Banking OperationsChecking letter of credit conditions and preparing documents.Source
ICC Academy (International Chamber of Commerce) — Standby Letters of Credit Guide — Explains the international application of SBLCs and the difference in scope between ISP98 (ICC Publication 590) and UCP 600.
Last updated: August 15, 2026