Various Uses and Benefits Of SBLC

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SBLC - Various Uses and Its Benefits
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• A standby letter of credit may be defined as a
  guarantee of payment (is a statement of guarantee
  by the issuing bank that the payment will be made
  by the buyer to the seller) issued by a bank on
  behalf of a client.
• If the client fails to perform an act or
  omission as per the terms and conditions of a
  particular contract, only then the role of the
  bank comes into being.
• In such cases, the bank would be held liable to
  the extent of the initial liability of the
  client.

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• Standby Letter of Credit (SBLC) may be used by
  clients who have low creditability or those face
  various hindrances in trade due to their lack of
  goodwill among the suppliers.
• Here, mostly, the bank becomes the surety of the
  client, and thus is jointly liable with the
  client, and while the expiry term for a Letter of
  Credit is three months, that of an SBLC extends
  up to one year or so.
• The client may sometimes be required to produce
  or present before the issuing bank cash,
  securities or some other immovable property as
  collateral for the issuance of a standby letter
  of credit.

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• Advantages of SBLC
• It increases the creditability of the client, and
  also secures the payment to the supplier. If
  client have some kind of standby letter of credit
  then the suppliers would be more confident to
  supply goods to a client with relatively less
  creditability or creditworthiness.
• The use of SBLC is more convenient and more
  feasible compared to the standard letter of
  credit.

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• A standby letter of credit may be used within
  both nation and international.
• With SBLC, the supplier can accept payments
  through bank transfer which is comparatively a
  more simplified and convenient method of
  transaction in recent times, and the cost of
  usage of this method of finance is relatively
  lower than that in case pf documentary credit, or
  the standard letter of credit.

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