A Standby Letter of Credit (SBLC) is a payment guarantee that is issued by a bank or financial institution by a SWIFT MT760 message, and is used as payment for a client in the case that the applicant defaults.
A SBLC can be utilized within a wide range of financial and commercial transactions. They are very similar to Documentary Letter of Credits (DLC) but are different in that a Standby Letter of Credit (SBLC) only becomes usable if the applicant defaults.
In this case, the beneficiary of the SBLC can place a draw and demand payment.
A Standby Letter of Credit requires the presentation of specific documents agreed upon in the terms and conditions of the SBLC.
Without the specific documents, payment cannot be made.
The SBLC protects the seller/exporter by getting them paid, and protects the buyer/exporter in the case that the seller never ships the goods ordered, ships them damaged, or ships the goods not as agreed upon in the contract.
A SBLC is an extremely flexible financial instrument which makes it a great option for a variety of financial deals.
