What does SBLC stand for?
‘Standby Letter of Credit (SBLC) is a type of letter of credit (LC) where the issuing bank commits to pay to the beneficiary if the applicant fails to make the payment.
What is SBLC used for?
SBLCs, unlike other types of LCs, are a type of contingency plan. In the case of other LCs, the bank makes the payment first, and then the applicant pays to the bank at a later date. However, when a bank issues an SBLC, they are only required to make the payment if the buyer or the applicant defaults.
Who can issue SBCL?
Any bank or NBFC can issue an SBLC once they are confident about the creditworthiness of the applicant . This is because the banks or the issuing institutions are exposed to the highest risk in the process.
How to get SBLC?
In order to obtain a standby letter of credit, a buyer has to contact a bank and establish their creditworthiness. The bank may ask for additional collateral if the risk or the amount is too high. Once the buyer fulfills all the conditions and the bank deems them fit for receiving the credit, the bank issues them an SBLC and charges 1% to 10% of the total amount as an annual fee for as long as the standby letter of credit is valid.
Types of SBLC
1) Financial Standby Letter of Credit
A financial SBLC guarantees payment to the seller or the service provider for the goods or the services rendered as per the agreement within the stipulated time frame.
Example: If an edible dye manufacturer sends a shipment to a soft drink company against a financial SBLC, and the company is unable to pay for it, the issuing bank will step in and pay the manufacturer for the dye. Later on, the soft drink company would have to pay the full amount and interest to the issuing bank.
2) Performance Standby Letter of Credit
A performance SBLC is less commonly used compared to a financial SBLC. Performance SBLCs provide a guarantee of completion of a project as per the agreement or the contract. If the service provider fails to complete the project within a stipulated time frame, the bank steps in and reimburses the client.
Example: An IT company hires a contractor to construct a new office. The contractor agrees to complete the construction within a specific time frame but fails to deliver. However, if this deal is protected by a performance SBLC, the issuing bank will pay entire project fees to the IT company and will charge penalties to the contractor. This acts as a safety check to ensure that heavy budget projects are completed in a timely fashion.
3) Advance Payment SBLC
Advance Payment Standby LC provides security against one party’s failure to pay the other party’s advance payment.
4) Bid bond/ Tender SBLC
Bid bond/Tender Standby LCs act as a security against failure to complete the project once the applicant has been awarded the bid or the tender for it.
5) Counter SBLC
‘Also known as a backstop or a protective standby, Counter SBLC is a type of LC issued by a bank in one country to a bank in another country, asking them to issue a new standby LC to their local beneficiary.
What does SBLC stand for?
‘Standby Letter of Credit (SBLC) is a type of letter of credit (LC) where the issuing bank commits to pay to the beneficiary if the applicant fails to make the payment.
What does SBLC stand for?
‘Standby Letter of Credit (SBLC) is a type of letter of credit (LC) where the issuing bank commits to pay to the beneficiary if the applicant fails to make the payment.
What does SBLC stand for?
‘Standby Letter of Credit (SBLC) is a type of letter of credit (LC) where the issuing bank commits to pay to the beneficiary if the applicant fails to make the payment.
What does SBLC stand for?
‘Standby Letter of Credit (SBLC) is a type of letter of credit (LC) where the issuing bank commits to pay to the beneficiary if the applicant fails to make the payment.
What does SBLC stand for?
‘Standby Letter of Credit (SBLC) is a type of letter of credit (LC) where the issuing bank commits to pay to the beneficiary if the applicant fails to make the payment.
What does SBLC stand for?
‘Standby Letter of Credit (SBLC) is a type of letter of credit (LC) where the issuing bank commits to pay to the beneficiary if the applicant fails to make the payment.
What does SBLC stand for?
‘Standby Letter of Credit (SBLC) is a type of letter of credit (LC) where the issuing bank commits to pay to the beneficiary if the applicant fails to make the payment.
What does SBLC stand for?
‘Standby Letter of Credit (SBLC) is a type of letter of credit (LC) where the issuing bank commits to pay to the beneficiary if the applicant fails to make the payment.
What does SBLC stand for?
‘Standby Letter of Credit (SBLC) is a type of letter of credit (LC) where the issuing bank commits to pay to the beneficiary if the applicant fails to make the payment.
What does SBLC stand for?
‘Standby Letter of Credit (SBLC) is a type of letter of credit (LC) where the issuing bank commits to pay to the beneficiary if the applicant fails to make the payment.
What does SBLC stand for?
‘Standby Letter of Credit (SBLC) is a type of letter of credit (LC) where the issuing bank commits to pay to the beneficiary if the applicant fails to make the payment.
What does SBLC stand for?
‘Standby Letter of Credit (SBLC) is a type of letter of credit (LC) where the issuing bank commits to pay to the beneficiary if the applicant fails to make the payment.
What does SBLC stand for?
‘Standby Letter of Credit (SBLC) is a type of letter of credit (LC) where the issuing bank commits to pay to the beneficiary if the applicant fails to make the payment.