We field a lot of inquiries here. One of the most popular requests we get is for standby letters of credit. We know many of the reasons people ask for them. By far, the most popular reason is that someone told the client that they had to have one to do what they wanted to do.
It turned out that one recent inquiry for a standby letter of credit could be satisfied by simply financing against the purchase orders the client had already received. An asset-based form of finance suited their needs, and we could see that a similar strategy to finance against incoming documentary letters of credit would suffice for their foreign orders.
More often requests for SBLC’s are for commodity deals. Sometimes they’re necessary. Other times, a bit of negotiating in the finance structure of the deal can open up the deal to more accessible finance. Whenever there’s a trader in between buyer and seller, it will be difficult for the trader to create an SBLC, since they would need to have a substantial amount of capital to complete the deal.
At such times, an alternative settlement process may get the deal done. We emphasize looking for deals that are possible to do, or working to create a structure more easily accomplished.
You Can’t Always Get What You Want…
Most of you know the rest of the song line. But if not, here’s a link to a live Rolling Stones performance that helps drive home the point about SBLC’s.
We try to keep in mind that what you want and what you need may be different, but reminders never hurt. If they’re well played.