Standby Letter of Credit

Standby Letter of Credit

What is a Standby Letter of Credit?

The Standby Letter of Credit (SBLC) is classified as a letter of credit, also called documentary letter of credit. It is a term widely used to secure payments in national and international trade. The document is issued by a financial institution, at the request of the buyer. The buyer also provides instructions for preparing the document.

How is the Standby Letter of Credit Used Traditionally?

A standard commercial letter of credit is used principally in international trade finance dealings of substantial value, for trades between a provider in one area and a client in another; which usually provides an irrevocable payment bank undertaking. However, there are other purposes and uses of a documentary letter of credit.

The letter of credit format under a Standby Letter of Credit can also be used for payment on a transaction. When redeemed, the Standby Letter compensates an exporter. Additionally, an SBLC can be used in a land development effort to ensure that approved public installations (streets, sidewalks, storm water system ponds, etc.) will be built. The companies to a letter of credit are usually a beneficiary who is to obtain the money, the issuing bank of whom the applier is a client, and the advising bank of whom the beneficiary is a client.

The International Chamber of Commerce (ICC) in the Uniform Custom and Practice for Documentary Credit (UCPDC) defines letters of credit as follows:

An arrangement, however named or described, whereby a bank (the Issuing bank) acting at the request and on the instructions of a customer (the Applicant) or on its own behalf :

Is to make a payment to or to the order third party ( the beneficiary ) or is to accept bills of exchange (drafts) drawn by the beneficiary.

  1. Authorized another bank to effect such payments or to accept and pay such bills of exchange (draft).
  2. Authorized another bank to negotiate against stipulated documents provided that the terms are complied with.

A key principle to remember with the Standby Letter of Credit is banks deal only in documents or goods and do not involve themselves in the commitments and contracts between the two parties directly. The concern of the issuing bank is the terms and conditions of the letter of credit itself. The decision to pay by an SBLC is based entirely on whether the documents submitted to the bank appears on their face to comply with the terms of the letter of credit.

Unlike a traditional letter of credit where the beneficiary obtains payment against papers demonstrating delivery, the Standby Letter of Credit may allow a beneficiary to obtains payment from a financial institution even when the applier for the credit has neglected to perform as per bond.

Initially used by the depository financial institutions in the United States, the standby letter of credit is very much alike in nature to a bank guarantee. Under this context, the main object of writing out such a credit is to secure bank loans. The Standby Letters of Credit are usually cut by the appliers bank in the applicant’s country and apprised to the beneficiary by a bank in the beneficiary’s country.

Lease Standby Letter of Credit

As a part of the suite of the fee based Credit Enhancement financial services that Balboa Trade facilitates, there are a variety of formats and delivery methods available for Standby Letter of Credit (SBLC POF). These are primarily made available with the setup of domestic and foreign bank accounts as well as foreign private trust accounts. Our clients can enhance their credit profile by joint venturing with the service providers and asset holder relationships Balboa Trade arranges.

Cash accounts for the issuance of the Standby Letter of Credit are set up and prepaid for terms of 1 to 12 months or longer as needed. Please visit our Procedures page for more information on how to utilize this financial solution. Balboa Trade is interested in the long term success of our client’s several transactions. We work hard to ensure satisfaction. Please inquire at our website Contact page so we can begin the application process and work towards your success.

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