A Comprehensive Guide On The Standby Letter Of Credit

1
THE HANSON GROUP OF COMPANIES
2
A COMPREHENSIVE GUIDE ON THE STANDBY LETTER OF
CREDIT
Know the global set of rules which govern the
standby letter of credit. Using the financial
instrument will offer the assurance of payment
from the undertaking issuer. (Here issuers are
often banks) The SBLC is the underlying contract
or agreement between the issuers client (In
terms of SBLC we can say that the client is
referred to the applicant) and the clients
contract counterparty (In terms of SBLC we can
say that the counterparty is referred to the
beneficiary).
3
When the issuer bears a stronger credit rating,
the SBLC can be obtained easily from the bank. An
applicant can apply for a bank guarantee after
checking if they have a good credit score or not.
the SBLC may include the reference to the
underlying contract between the applicant and
beneficiary the issuers obligations remain
fully independent of the underlying contract
which will be supporting. However, know that SBLC
will simply expire in accordance with the SBLCs
stated expiry period or date. This is because the
applicant successfully completes their
contractual obligations and when the beneficiary
will have no reason to demand payment under the
SBLC.
3
4
Benefits of using the standby letter of credit
? The banks standby letter of credit substitute
as well as enhance or replace the
creditworthiness of the applicant so that the
bank can offer the banking instrument. ? The SBLC
will help in any type of contract or trading. ?
Since SBLC is recognized globally as an effective
tool it means securing cross-border and domestic
contracts
4
5
The financial SBLCs are issued to back the
financial obligations or some form of any
indebtedness such as loan repayment or
irrevocably obligate the issuer in the event of
the applicant fails to honor the payment
obligation. Also, the performance SBLC is used
which is used as a backup for the companys
performance related to the duties. These are
contractual, non-financial obligations and
irrevocably obligate the issuer in the event of
the applicant fails to perform as agreed.
YOU CAN EASILY GET THE BANK GUARANTEE FOR THE
REASONS WHICH ARE MENTIONED BELOW
5
6
Parties involved in getting the bank guarantee
1. Applicant When a contract is required, the
party who reaches the bank to get the financial
instrument is the applicant. The applicant will
have different names here as borrow, buyer,
etc. 2. BeneficiaryIt is the party that receives
all the benefits of the SBLC. They can receive
the payment against the SBLC or get the required
payment involved in the transaction. The
beneficiary here is the seller, lender, etc. 3.
Bank Confirmation may be offered only at the
request of the applicant. One can apply for a
standby letter of credit at the bank and the bank
is the party or issuer who offers the financial
instrument to the applicant. The bank will verify
the background of the ap
6
7
THANK YOU