Standby letter of credit

A standby letter of credit (SBLC or SLOC) is a demand guarantee issued by the bank or an institution, a commitment of payment to a seller in case of a breach in contract by the buyer or an applicant. 

International rules governed by the international chamber of commerce (ICC), the rights and obligations of parties under a standby letter of credit (SBLC) produced by the ICC. current versions are ISP98, in some cases UCP600 will be applied.

*SBLC’s are issued by – Bank Winter & Co. Ag, Austria. and other notable banks.

Financial - Standby letter of credit

Financial or Commercial standby letter of credit (SBLC/SLOC) is a commitment of  payment for goods or services as specified by an agreement made between buyer and the seller. Financial standby is a guarantee of payment if there is breach in contract. 

Example: A trading company, may facilitate SBLC to reassure a seller of certain commodity that buyer will pay before the maturity date. Usually this type of SBLC acquired if purchase volume is huge and they might working on a open account basis to back the financial SBLC as a insurance.

Performance - Standby letter of credit

Performance Standby is issued to the beneficiary whether they are government, public or private bodies usually it happens the tender bidding contract.  Beneficiary urges the applicant to issue the bid bond during the bid, and performance bond after the contract gets awarded to applicant.

Performance standby (SBLC) act as a assurance from the bank, or financial institution or insurance company in favor of a beneficiary by the request of an applicant.

Performance SBLC utilized to support the beneficiary who are concerned about the prospect, that the applicant might become insolvent or otherwise incapable to fulfill the contractual obligations. In the event of bankruptcy, the beneficiary receives compensation from the guarantors’ bank or institution. And it reduces financial stress or other damages caused by the applicant. 

Other Standby LC's

Warranty Standby is a commitment that guarantees the buyer and seller or between the contractor and the investor or a consumer, It promises the buyer or an investor if any defects occurred during the warranty period will be repaired or replaced. Warranty bond mostly utilized in Construction, EPC, other heavy and consumer goods industries. 

 

A Bid Bond or Tender Standby is issued as an initial portion of the bidding process participated by the contractor, supplier or services to a project, a Bid bond widely used in government projects where the number of participants applies for a selective tender to get awarded under the bidding terms. 

 

Advance Payment Standby is a bank guarantee where an issuer (bank) undertakes the obligation to draw an advanced payment to the buyer, when the seller debts and fails to deliver the goods or services, and it guarantees that the advance payment will be returned to the buyer or the beneficiary during this occurrence.

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Note:

* Check out ITF’s range of standby letter of credit, We have excellent underwriting team and we worked in the vast areas from international trade, construction, green projects, government tendering etc. feel free talk to us or send us filled application form or contact us.

* Our sales & support team will guide you throughout the application process, drafting, service agreement, invoicing and issuance.

How SBLC works? 

The guarantor (issuing bank) assures that the liabilities of a debtor will be met in the event of breach in contract. In short, if the debtor fails to settle a debt, the guarantor i.e the issuing bank or a institution will cover the claim. A Standby letter of credit (SBLC) allows the business or a consumer, or debtor, to acquire goods, services, participating in a tender bid either liabilities measure by financial or performance. 

Purpose of standby LC.

SBLC‘s are widely used in international trade by standing as an assurance and it stands as a secure payment method in terms of international trade. ITF supports startups, SMEs, and large corporations to fulfill the demand without pledging their collateral. Beneficiaries agree with it by knowing that ITF products are asset-backed so the security of payments are rest assured.