BG/SBLC MT760: WHAT IT IS AND WHY IT MATTERS

In the world of finance and banking, you may have come across the term “BG/SBLC MT760”. While it sounds complex and technical, breaking it down makes it much easier to grasp. So, what exactly is BG/SBLC MT760? And why is it important in financial transaction? We are going to tell you why;

So What Does BG/SBLC MT760 Stand For?

Let’s first decode this mouthful of a term:

• BGS: Bank Guarantee (BG)
• SBLC: Standby Letter of Credit (SBLC)
• MT760: A type of SWIFT message used in banking.

Each part plays a crucial role in international trade and finance. Bank guarantees and standby letters of credit are financial tools used in transactions, while MT760 refers to the method banks use to communicate these guarantees through the global SWIFT network.

The Role of a Bank Guarantee (BG) and Standby Letter of Credit (SBLC)

A Bank Guarantee (BG) is essentially a promise made by a bank to cover a loss if a customer defaults on a contract. It’s a way of providing confidence in transactions, particularly in cases where large amounts of money or international partners are involved. If one party fails to meet their obligations, the bank steps in and ensures that the financial responsibility is taken care of.

Bank Guarantee (BG) Meaning

A bank guarantee is a guarantee given by the bank on behalf of the applicant to cover a payment obligation to a third party. In other words, the bank becomes a guarantor and is answerable for the person requesting the guarantee in the event that they are unable to make the payment they have agreed with a third party.

Why do Businesses Need a Bank Guarantee?

Businesses frequently require a bank guarantee to reassure partners that they can meet the terms of a contract. It offers an additional layer of security, allowing for smoother transactions, particularly in large deals or international trade. Without a bank guarantee, some businesses may hesitate to enter into contracts or agreements, particularly with unknown third parties.

A bank guarantee can also help businesses gain access to goods, services, or credit that they would not otherwise be able to obtain. For example, a small company may use a bank guarantee to reassure a supplier and secure a large order. It assures the supplier they will be paid, even if the small business experiences financial difficulties.

What are the requirements for obtaining a bank guarantee?

By offering a guarantee, the bank becomes responsible for a possible future debt of the applicant and therefore runs a risk, in the same way as for loans. The bank does not have to release the money at the time (and will most likely never have to do so), but it will still impose a number of conditions that are usually the same as for any other asset transaction.

Bank guarantees, for individuals, are mainly used as a guarantee for rental contracts. The person requesting the guarantee must be a customer of the bank, which will assess their level of solvency and payment performance and check the funds available to them. If everything is in order there is a good chance that it will provide a guarantee for the amount requested. For this, the person asking for the guarantee must provide the specific details of the property they wish to rent, the owner and the amount requested in the guarantee.

Key Takeaways

• A bank guarantee is a promise by a financial institution to meet the liabilities of a business or individual if they don’t fulfill their obligations in a contractual transaction.
• Bank guarantees are largely used outside the U.S. and are similar to American standby letters of credit.
• Bank guarantees are mostly seen in international business transactions, although they may also individuals may need a guarantee to rent property in some countries.
• Different types of guarantees include a performance bond guarantee, an advance payment guarantee, a warrantee bond guarantee, and a rental guarantee.

Different Types of Bank Guarantees

Just as there are many types of business transactions, there are also different types of bank guarantees. Two common ones are performance guarantees and financial guarantees.

Performance Bank Guarantees

A Performance Guarantee covers losses suffered by the beneficiary in the event the provider is found guilty of non-performance on a contract.

Financial Bank Guarantees

A Financial Guarantee is a promise to pay by the issuing bank should the provider default on a payment to the beneficiary.

Popular types of guarantee are outlined below:

• Performance Guarantees
• Financial Guarantees
• Payment Guarantees
• Contract Execution Guarantee
• Tender Guarantee
• Warranty Execution Guarantee
• Customs Guarantee
• Advance Payment Guarantee

Banker’s Guarantee Format

A banker’s guarantee format is designed to fulfill clients’ needs and compliance requirements.

This contract typically consists of several key components. It specifies the guaranteed amount, validity period, and the specific conditions under which the guarantee can be invoked. It also defines the obligations of the principal (the party requesting the guarantee) and the beneficiary’s rights (the party to whom the guarantee is issued).

A bank guarantee’s format also includes information about the issuing bank’s commitment to pay the beneficiary on demand and within the agreed-upon terms, assuring that financial or performance obligations will be met. The terms outlined are essential for making sure all parties understand their respective responsibilities and the scope of the guarantee.

Bank Guarantee Example:

Below is an example of a banker’s guarantee that formalizes an agreement between the Bank of Singapore (guarantor), ABC Company (beneficiary), and Mr. George (applicant). It outlines the terms under which the Bank of Singapore unconditionally and irrevocably guarantees Mr. George’s obligations to ABC Company up to a specified amount, including the conditions, validity period, and legal framework that governs the guarantee.

Date: 01/01/2024

BANK GUARANTEE NO.: 44445555

FOR: S$20,000,000 (Twenty Million Singapore Dollars Only)

RE: GUARANTEE IN FAVOUR OF ABC COMPANY

Dear Sirs,

In consideration of ABC Company (hereinafter referred to as the “Beneficiary”) entering into an agreement with Mr. George (hereinafter referred to as the “Applicant”), we, the Bank of Singapore, unconditionally and irrevocably guarantee to pay to the Beneficiary any sum or sums not exceeding in total an amount of S$20,000,000 (Twenty Million Singapore Dollars Only) upon receipt by us of the Beneficiary’s first written demand stating that the Applicant has failed to fulfill his contractual obligations.

This guarantee shall be valid and binding upon the Bank of Singapore from [01/01/2024] to [30/01/2024] (both dates inclusive) and shall cover all claims made in writing to us within this period.

Our liability under this guarantee is strictly limited to the amount specified herein and shall not be affected by any change in the constitution or the operations of the Beneficiary or the Applicant.

This guarantee is subject to the laws of the Republic of Singapore and may not be assigned or transferred without our prior written consent.

Claims under this guarantee must be received by us at the address above on or before the expiry date. Any claims received after the expiry date shall not be entertained.

This guarantee is issued at the request of the Applicant and upon the condition that the Applicant indemnifies us against all liabilities, claims, losses, and expenses that may be incurred by us in relation to this guarantee.

Yours faithfully,

For BANK OF SINGAPORE

[Authorized Signatory’s Name]
[Authorized Signatory’s Position]
Bank of Singapore

On the other hand, an SBLC serves as a similar purpose but is generally used in international trade. It’s a “backup” guarantee, activated only if the buyer doesn’t fulfill the agreed-upon obligations.

Standby Letter of Credit (SBLC) Meaning

A Standby Letter of Credit (SBLC) is a payment guarantee that is issued by a bank or financial institution by a SWIFT MT760 message, and is used as payment for a client in the case that the applicant defaults.

A SBLC can be utilized within a wide range of financial and commercial transactions.  They are very similar to Documentary Letter of Credits (DLC) but are different in that a Standby Letter of Credit (SBLC) only becomes usable if the applicant defaults.  

In this case, the beneficiary of the SBLC can place a draw and demand payment.

A Standby Letter of Credit requires the presentation of specific documents agreed upon in the terms and conditions of the SBLC.  

Without the specific documents, payment cannot be made.  

The SBLC protects the seller/exporter by getting them paid, and protects the buyer/exporter in the case that the seller never ships the goods ordered, ships them damaged, or ships the goods not as agreed upon in the contract.

A SBLC is an extremely flexible financial instrument which makes it a great option for a variety of financial deals. 

HOW DOES THE STANDBY LETTER OF CREDIT (SBLC) PROCESS WORK?

Closing Process

Step 1: Application 

Fill out and return the Standby Letter of Credit (SBLC) application with the documents for your deal (Pro Forma Invoice, SPA, Contract, etc.)

Step 2: Issuing of Draft

A SWIFT MT760 draft of the Standby Letter of Credit (SBLC) will be created for you and your seller/exporter to review and confirm.

Step 3: Draft Review and Opening Payment

a) Finalize the draft between you and your seller/exporter and sign off on the draft (changes are free of cost).

b) We issue you a payment invoice for the SBLC, which you arrange to pay.

c) Once we receive your wire payment, we will release the finalized Standby Letter of Credit (SBLC) to the bank for issuance and delivery.

​

Step 4: Issuance 

More often than not, the bank will issue the Standby Letter of Credit (SBLC) within 48 hours of release.

Once issued, a copy of the SBLC will be emailed to you as it is transmitted by a MT760 SWIFT message to the beneficiary, including the reference number of the SBLC.

Your seller’s bank will receive and confirm the Standby Letter of Credit (SBLC) transmission soon thereafter.

Step 5: Presentation of Documents

Once the seller/exporter has prepared and loaded all goods for shipment, they must send the specified documents for that particular shipment to their own bank.  

Their bank will then forward the documents to our bank, and we will email you copies of the presentation and all of the documents that were submitted by the seller/exporter for your review and approval.  

Step 6: Payment of Goods

Before our bank can release the original documents, we must receive payment for the presentation.  

Once we have received payment, we cosign the documents to you and overnight them to your freight forwarder or to whomever you wish.  This completes the transaction.

The Standby Letter Of Credit (SBLC) is governed by a set of guidelines known as the Uniform Customs and Practice (UCP 600), which was first created in the 1930s by the International Chamber of Commerce (ICC).

WHAT ARE THE TYPES OF STANDBY LETTER OF CREDIT? (SBLC)

1. Tender-Bond or Bid-Bond Standby Letter of Credit:

Is issued as part of a bidding procss by a contractor to the project owner, to provide a guaranteee to execute a contract if the buyer is awarded a tender or bid.

2. Performance Standby Letter of Credit:

Is an irrevocable undertaking by a bank to guarantee the beneficiary payment in the case that the buyer fails to perform on a contractual non-financial obligation

3. Advance-Payment Standby Letter Of Credit:

Used to facilitate a timely receipt of an advance payment.​

4. Financial Standby Letter of Credit:

It is an irrevocable undertaking by a bank guaranteeing the buyer’s financial obligation to the beneficiary.

5. Insurance Standby Letter of Credit:

It is an irrevocable undertaking by a bank guaranteeing the buyer’s financial obligation to the beneficiary.

6. Counter Standby Letter of Credit: 

A separate Standby Letter of Credit given by a bank to another bank issuing a Standby Letter of Credit.

7. A Commercial Standby Letter of Credit:

Backs the commitment of a buyer to pay a seller for goods or services in the case of non-payment by the buyer.

8. A Direct-Pay Standby Letter of Credit:

Usually associated with tax-exempt or taxable bond-financed projects.  Funds may be drawn upon the bond trustee without relying on funds provided by the client.

Some Uses and Application of Bank Guarantees (BG) and Standby Letters of Credit (SBLC).

• Bank Guarantees:
• Domestic Transactions: BGs are commonly used in domestic contracts and performance guarantees. For example, a construction company may provide a BG to ensure that they will complete a project as per the contract terms.
• Performance and Tender Bonds: Often required in bidding processes or for ensuring project completion.
• Standby Letter of Credit:
• International Trade: SBLCs are primarily used in international trade to mitigate risks associated with cross-border transactions. For instance, a supplier might require an SBLC from a buyer to ensure payment for a shipment.
• Large Transactions: Suitable for high-value transactions where there is a significant risk of non-performance.

Nature of the Commitment

• Bank Guarantee:
• Contingent Obligation: The bank’s commitment is contingent on the occurrence of a specified event, such as a default. Payment is made based on this event, without requiring specific documentary proof.
• Standby Letter of Credit:
• Documentary Obligation: Payment under an SBLC requires the presentation of specific documents that prove the applicant’s default. This process adheres to international standards, making it more structured and formal.

Document Presentation

• Bank Guarantee:
• Less Stringent: Generally, no specific documents are required for claiming payment. The beneficiary may need to provide proof of default or non-performance, but the process is typically less formal.
• Standby Letter of Credit:
• Documentary Requirements: To claim payment, the beneficiary must present documents such as invoices, shipping documents, or other evidence of default as stipulated in the SBLC terms. This requirement ensures that the process is transparent and adheres to international practices.

Legal Framework and Regulation

• Bank Guarantee:
• Local Regulation: BGs are governed by local laws and regulations, which can vary significantly between jurisdictions. The specifics of a BG depend on regional practices and legal interpretations.
• Standby Letter of Credit:
• International Standards: SBLCs are regulated by international rules like ISP 98 or UCP 600. These frameworks provide a standardized approach to handling SBLCs, facilitating international transactions and reducing legal ambiguity.

Now What is MT760?

MT 760 is another type of SWIFT message sent from an issuing bank to an advising bank, with details of the SBLC or bank guarantee.

When we talk about MT760, we’re referring to a specific type of message used to send guarantees like BGs and SBLC between banks. So, if a company requests a guarantee from a bank to assure payment in a transaction, the bank would use an MT760 message to issue that guarantee to the other party’s bank. In simple terms, MT760 is the method used to transmit this financial security from one institution to another.

Why is MT760 used in trade?

MT760 can be used either by the party issuing a beneficiary on a guarantee or LOC, or by the party issuing a counter-undertaking to the beneficiary.

MT760 is another type of SWIFT message sent from an issuing bank to an advising bank, with details of the SBLC or bank guarantee. Generally, the MT799 is subject to the rules of the following:

• URDG (Uniform Rules for Demand Guarantees)
• ICC UCP 600 (International Chamber of Commerce Uniform Customs and Practice for Documentary Credit)
• ISP (International Standby Practices)

MT760 Criteria

Unlike the MT799, the MT760 requires much more information regarding the transaction. Information such as:

• Parties involved (Issuer, Beneficiary, Applicant, Obligor, Advising Bank)
• Dates and timings
• Transaction Details
• Transport details; goods presentation

Why Is BG/SBLC MT760 Important?

In today’s global economy, transactions often involve large sums of money and trust between business or individuals who may not know each other well. Having a bank guarantee (BG) or a standby letter of credit (SBLC) in place, and transmitting it securely via MT760, helps reduce the risk involved in these deals.

This combination of security tools is commonly used in industries like construction, import/export, and real estate, where large contract often hinge on the assurance that one party won’t be left hanging if the other can’t meet their commitments.

How Does BG/SBLC MT760 Work in Real Life?

Let’s say a company in London is purchasing high-end machinery from a manufacturer in Germany. The London-based buyer may not want to pay for the machinery upfront, and the German manufacturer may not want to ship the machinery without some guarantee that they’ll get paid. This is where a BG or SBLC comes into play.

The London company approaches its bank to issue a Standby Letter of Credit, ensuring that they will be paid as long as the machinery is shipped as agreed. The London bank then sends an MT760 message to the German manufacturer’s bank, guaranteeing the funds if the terms are met. The transaction is secured, and both parties proceed in confidence.

Services offered by General Credit Finance and Development Limited

General Credit Finance and Development Limited (GCFDL) are premier providers of Business Loan, SME Loans, Collateral Transfer, Bank Financial Instruments, Standby Letters of Credit (SBLC) and Bank Guarantees (BG), BG/SBLC MT760 with five decades of experience.

Since our incorporation in 1973, we’ve been the trusted choice for businesses across the globe, offering tailored financial solutions for viable projects worldwide and welcoming applicants from all cultures, and nationalities without discrimination.

Our Core Services:

• Business Loans: Flexible loan solutions tailored to your company’s unique needs.
• Standby Letters of Credit (SBLC): Secure international trade with our SBLC services, backed by top AAA-rated banks.
• Bank Guarantees (BG): Strengthen your financial standing with our BG solutions.
• Leased Bank Guarantee: Gain immediate access to financial instruments through leasing.
• SBLC/BGSBLC Monetization: Unlock liquidity from your bank instruments to fuel growth.

Why Choose General Credit Finance For BG/SBLC MT760?

We work with a network of the world’s top banks, including Citibank, HSBC, Wells Fargo, Deutsche Bank, and more, ensuring that your financial needs are met with credibility and precision. Whether you’re looking to activate credit lines, monetize financial instruments, or secure letters of credit for international trade, we have the expertise and global connections to make it happen.

We offer financing for viable projects worldwide and welcome applicants from all races, cultures, and nationalities without discrimination. If your business or project is profitable and sustainable, we are prepared to provide the necessary funding. We provide loans for all industries and sectors at a competitive interest rate of 3% per annum. Our annual leasing fee for Bank Guarantees (BG) and Standby Letters of Credit (SBLC) is 4%.

Join Our Brokers Program – Earn 2% Commission on Every Deal!

We’re excited to invite new brokers to our lucrative Brokers Program. You will earn 2% commission for every successful deal you bring to us.

Get Started Today!

Learn more about how our SBLC, Bank Guarantees, and loan services can transform your business. Whether you’re an entrepreneur seeking financing or a broker eager to join a winning team, General Credit Finance and Development (GCFDL) is here to help you every step of the way.