Standby Letters of Credit (SBLC)
It’s a guarantee of payment issued by a bank/financial institution on behalf of a client which can be used as repayment in case of default by the applicant.
Euro Finance Group Ltd assures standby letter of credit to all its customers without facing any sort of difficulties. A standby letter of credit is a guarantee that a bank or a financial institution provides under which a beneficiary is paid on behalf of a client when an applicant defaults. This financial instrument is among the most preferred and flexible tool for making the secure payments. A standby letter of credit came through as a legal limitation imposed by a US regulator on the authority of a bank for providing guarantees.
The standby letter of credit is further divided into different types. These are as below:
A performance standby
A direct-pay standby
An advance-payment standby
A bid-bond or tender-bond standby
A counter standby
A financial standby
An insurance standby
A commercial standby
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.
A standby letter of credit is used in international or domestic transactions where the seller and the buyer do not know each other, and it attempts to hedge out the risks associated with such a transaction. Some of the risks include bankruptcy and insufficient cash flows on the part of the buyer, which prevents them from making payments to the seller on time.
In case of an adverse event, the bank promises to make the required payment to the seller as long as they meet the requirements of the SBLC. The bank payment to the seller is a form of credit, and the customer (buyer) is responsible for paying the principal plus interest as agreed with the bank.
The standby letter of credit has gained a lot of popularity for the purposes of international trade. It provides an assurance or a guarantee that the party will get the payment no matter what the circumstances are. We at Euro Finance Group Ltd ensure that all our customers do not face any sort of difficulties or hassles. Our trade finance experts will provide you with the needed guidance.