Understanding Standby Letter Of Credit (SBLC)

Understanding Standby Letter Of Credit (SBLC)

What is a Standby Letter of Credit (SBLC)?

Standby Letter of Credit (SBLC / SLOC) is a guarantee that is made by a bank on behalf of a client, which ensures payment will be made even if their client cannot fulfill the payment. It is a payment of last resort from the bank, and ideally, is never meant to be used. 

Another prominent payment technique used in international trade is the Standby Letter of Credit. We already know what a Letter of Credit is.

The key to understand this payment technique is therefore the word Standby. In the cambridge dictionary, it reads about that word:

  • Something that is always ready for use, especially if a regular one fails.
  • When a person or a thing is on standby, they are ready to be used if necessary

Standby Letter of Credit (SBLC) is the commonly used word in the trade finance industry / business. But individuals in business don’t know about SBLC completely. Also, there are people who get confused between SBLC and LC (Letter of Credit). But both financial instruments are widely used in the business field. Medium Term Note (MTN) and SBLC are the ways through which you can improve your business. Usually, the individuals who run big business utilize these financial instruments so that they can run the business successfully. 

Understanding uses of Standby Letter Of Credit (SBLC) in foreign trade

Understanding Standby Letter Of Credit (SBLC)

SBLC is the fundamental bank instrument which can be used during international trade. The standby letter of credit serves as the payment instrument which guarantees the payment involved in the trading. Here the bank will provide the guarantee document for the seller where the bank guarantees that the payment will be done by the buyer otherwise the bank will make the payment during the worst case.

How does the Standby Letter of Credit (SBLC) work?

A bank will issue the Standby Letter of Credit (SBLC) to the client when applied to improve the business. The bank will issue the standby letter of credit on behalf of the client to provide the assurance of his/her ability to perform the transaction under certain terms and conditions. These conditions act as a contract between the buyer and the seller so that the business deal gets completed successfully. In case, if the client couldn’t complete the transaction, then the seller can present all the necessary documents to the bank to get the amount involved in the transaction.

On the other hand, the Medium Term Note (MTN) is generally designated as the debt securities with an issued maturity period. The maturity period varies and can be chosen based on the business need. Today, the medium term note has become the highly customized debt securities that serve various business needs. The main benefit of using MTN over other instruments is that it is flexible. The structure and documentation are easy and act as an effective tool in improving the business.

The MTN is used and sold by the financial institutions which act as the dealer over the period of time. The Medium Term Note (MTN) is mainly targeted on large institutional investors and high net worth individuals. The client can repay the amount after the mentioned amount of time in the related documents. Also, these medium term notes are highly used than the short term notes to have a constant cash flow for the company. This is the ideal choice when the companies fall short in finance and need time to repay the amount.

Thus, expanding the business is the main aim for all individuals who run a company. Hence you can use the financial instrument like Standby Letter of Credit (SBLC) to improve your business and to reach your business goal easily. Also with the MTN, a business can get steady cash flow from the investors to meet all the financial needs in the business.

When can you use the Standby Letter of Credit (SBLC)?

The reason why many people use the Standby Letter of Credit (SBLC) is that it serves as a proof of good faith element in the business transactions. Mainly it provides a guarantee for the payment of the goods or services purchased by the client. If the client faces any issue in paying the amount during the due period, the seller can submit the required documents and get the amount involved in the trading. Since the payment will be made for the seller in any situation, it will provide a comfortable feeling for them to start the trading.

Whereas if you need financial support then you can use the medium-term note under a program that allows the issuer to the MTNs from time to time. Many large companies depend upon these MTNs to satisfy their financial needs. The MTN is usually issued by a dealer over a period of time. The dealers are the financial organizations who sell the notes to the investors. Also, there will be no obligation for the dealer to sell a specified amount of the notes on behalf of the issuer.

The MTN is customized securities that are tailored to meet the issuer’s demand so that it can benefit them. This also provides a high rate of return than the other short term investments. All you need is to choose the best financial organization to get a standby letter of credit during the international trading and the medium-term note to improve your business. Also, since it is easy to repay the loan amount, you can get the MTN when you need it.

Thus, there are many challenges faced while running a business. If you are also facing some challenges makes use of different types of financial instruments so that you can develop your business and achieve your business goals.

If you are wondering why it is different to fund genuine sblc providers, then I highly recommend you to read “Genuine SBLC Providers

Grand City Investment Limited is the premier providers of lease bank guarantee, bg sblc providers, secured & unsecured loans, Recourse & Non Recourse Loans, Trade Finance, Investments, Wealth Management, Portfolio Management, issuance and monetization of Bank Instruments such as Standby Letter of Credit (SBLC), Bank Guarantees (BG), Usance LC, Letters of Credit and Funding for companies, SME’s and private individuals. 

As leading bank instrument providers, Our bank financial instruments are Cash-Backed and Stand as Obligation from our Bank on behalf of our Clients for their Credit needs, Business and Project Funding. All our Bank Instruments can be used to secure Funding for Projects, Business Expansions and Private Placement Programs (PPP).

Description of Instruments:
1. Instrument:                Fully Cash Backed Bank Guarantee {BG} / StandBy Letter of Credit {SBLC} (ICC 458/758 format)
2. Total Face Value:       Eur/USD 1Million (Min) to Eur/USD 50 Billion (Max)
3. Issuing Bank:            HSBC London/Hong Kong, Barclays Bank London, Citibank New York, Deutsch Bank Germany or any AAA Rated Bank.
4. Age:                         One Year and  One Day (with rolls and extensions where applicable)
5. Leasing Price:           4% of Face Value plus 2% brokers commission (Applicable only if there are brokers in the transaction)
6. Delivery:                    SWIFT MT-760
7. Payment:                  MT103  Wire Transfer
8. Hard Copy:                Bonded Courier within 7 banking days.
If you are in default on any existing loans, or even just need to finance/refinance or you are a trader, contractor that is in need of bank guarantees or letters of credit, just send us an email inquiry and let us know how we can work together to help your business grow. 
As a growing trader, importer or exporter, a bank guarantee or letters of credit from Grand City Investment Limited can help you to close more deals.  

Email: apply@grandcityinvestment.com
Website: www.grandcityinvestment.com


No Comments

Post A Comment