Standby Letter of Credit
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What is a Standby Letter of Credit?
A Standby Letter of Credit (SBLC) is a written undertaking issued by a bank on behalf of its client. SBLC guarantees the bank’s commitment of payment to the seller, in the event of the buyer defaults. Considered as a “payment of last resort”, SBLC assures that the bank fulfills the payment obligations; in case if the client fails to oblige with the contract terms.
Standby Letters of Credit certifies the credit worth and payment strength of the buyer. Also, it helps to facilitate global trade between companies that don’t know each other and have different rules & regulations. Therefore, traders mostly preferred to use this financial instrument as it gives the required payment guarantee.
Moreover, MT760 can also be used for the purpose of Collateral for Credit Enhancement. Thus, it will help traders who plan to expand their business, without giving up their cash funds. Having SBLC improves the company’s cash flow & seen as a sign of good faith. Further, SBLC allows traders to use their cash capital for other dealings before payments become due.
Are you looking to get Standby LC for your domestic purchase? Contact Bronze Wing Trading L.L.C. SBLC Providers in Dubai! We can extend our bank facilities from European Banks and will issue the required MT760 at ZERO Collateral.
Why Standby Letter of Credit Considered as a Backup Plan for Payment?
A Standby LC can add a safety net to both local and global transactions by assuring payment for the completed service or the supply of goods. With such an agreement, the bank guarantees the payment towards the seller, if any unforeseen happens. The SBLC describes the different situations which could cause the bank to pay.
For instance – A seller supplies the goods to the buyer who promises to make the payment within 30 days of shipment. If the payment never arrives, then the seller can claim the SBLC to the buyer’s bank to get the payment released.
Since the buyer’s bank takes the responsibility to pay the seller in case of default; before issuing the Standby, the buyer’s bank typically evaluates the buyer’s creditworthiness & repayment skills. If the credit score of the client is low, then the banks may require collateral or funds to deposit to get the SBLC issued. In case, if you can’t able to fulfill the demand of the bank, then the bank will not proceed further with your SBLC request.
But we, the SBLC Providers in Dubai understand the financial crisis faced by the traders; and also, we assist them to avail SBLC MT760 from our bank account without cash margin.
How a Standby Letters of Credit Works?
When two parties (buyer & seller) agree to use Standby LC as their payment term to conclude their trade deal. Then, the buyer has to open Standby LC in favor of the supplier from their bank. By issuing Standby LC in favor of the supplier & on behalf of the buyer, the bank guarantees the payment – even if the company closes down, declares bankruptcy, or unable to pay for goods and services provided.
For instance, if the buyer defaults, the seller has to present all documents mentioned in the issued SBLC to their bank. The bank verifies all the documents, and if it complies with the terms, they will pay the seller’s bank the amount due.
