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Standby Letter of credit

Standby letter of credit (SBLC) is a financial instrument issued by a bank or other financial institution that serves as a backup payment option in case the buyer fails to make payment or meet their contractual obligations. The SBLC is a written commitment by the bank to pay the seller or beneficiary a certain amount of money if the buyer defaults on their payment or performance obligations.

SBLCs are often used in situations where the buyer and seller do not have an established business relationship or in cases where the buyer is located in a high-risk country. The SBLC provides assurance to the seller that they will be paid if the buyer fails to meet their obligations.

Standby Letter of Credit 
Salient Features

  • As the very name denotes  it is not an ordinary letter of credit, but it is a sort of standby or back up credit.

  • These credits are generally used as substitutes for Performance Guarantee or for securing repayment of loans.

  • The document generally called for in this is a  simple statement of claim or proof of delivery of goods or certificate of non-performance.

  • SBLC has developed into an all-purpose financial support instrument issued to cover situations of non-performance.

  • No transport document is called for under this credit.

  • In traditional LC, the beneficiary is entitled get the payment once he submits all documents as per LC., where as

  • In SBLC, the beneficiary is eligible for payment from the issuing bank when the applicant fails to perform his obligation.

  • LC is a simple payment mechanism where as SBLC is a back up available to the beneficiary from issuing bank incase the applicant fails to pay or perform.

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