​A standby letter of credit, abbreviated as SBLC, refers to a legal document where a bank guarantees the payment of a specific amount of money to a seller if the buyer defaults on the agreement. An SBLC acts as a safety net for the payment of a shipment of physical goods or completed service to the seller, in the event something unforeseen prevents the buyer from making the scheduled payments to the seller. In such a case, the SBLC ensures the required payments are made to the seller after fulfillment of the required obligations.

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Types of Standby Letters of Credit (SBLC)

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Performance SBLC

Performance standby letters of credit ensure the non-financial contractual obligations (quality of work, amount of work, time, cost, etc.) are performed in a timely and satisfactory manner. If these obligations are not met, the bank will pay the third party in full.

Financial SBLC
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Financial standby letters of credit ensure financial contractual obligations are fulfilled. Most SBLCs are financial.
Financial SBLCs are often required when performing international trade or other large purchase contracts under which other forms of payment protections (such as litigation in the event of non-payment) can be difficult to obtain.

A standby letter of credit is often required in international trade to help a business obtain a contract. Since the parties to the contract do not know each other, the letter promotes the seller’s confidence in the transaction. It is seen as a sign of good faith since it shows the buyer’s credit quality and ability to make payment for goods or services even if an unforeseen event occurs. When setting up an SBLC, the buyer’s bank performs an underwriting duty to verify the credit quality of the buyer. Once the buyer’s bank is satisfied that the buyer is in good credit standing, the bank sends a notification to the seller’s bank, assuring its commitment of payment to the seller if the buyer defaults on the agreement. It provides proof of the buyer’s ability to make payment to the seller.

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As top SBLC providers, our Bank Guarantee and SBLC are cash backed and can be used for Discounting, Monetization and Private Placement Programs (PPP). They also can be used as collateral against a loan or credit line to secure Funding for Projects.