A Standby Letter of Credit (SBLC / SLOC) is a guarantee that is made by a bank on behalf of a client, which ensures payment will be made even if their client cannot fulfill the payment. It is a payment of last resort from the bank, and ideally, is never meant to be used, A standby letter of credit can be abbreviated either as SLOC or SBLC,
Financing for your small business isn’t always easy to come by—but it’s important to look down every avenue of opportunity; you might not be aware of one of the most powerful financing tools out there. Standby letters of credit can help your business in tough contractual and financial situations, making people more likely to sign contracts and do business with you.A standby letter of credit helps facilitate international trade between companies that don’t know each other and have different laws and regulations. Although the buyer is certain to receive the goods and the seller certain to receive payment, a SLOC doesn’t guarantee the buyer will be happy with the goods.
- Performance SLOC
- Performance standby letters of credit ensure the nonfinancial contractual obligations (quality of work, amount of work, time, cost, etc.) are performed in a timely and satisfactory manner. If these obligations are not met, the bank will pay the third party in full.Financial SLOCFinancial standby letters of credit ensure financial contractual obligations are fulfilled. Most SLOCs are financial.Financial SLOCs are often required when performing international trade or other large purchase contracts under which other forms of payment protections (such as litigation in the event of non-payment) can be difficult to obtain.
How a Standby Letter of Credit (SBLC) Works
An SLOC/SBLC is frequently used as a safety mechanism for the beneficiary, in an attempt to hedge out risks associated with the trade. Simplistically, it is a guarantee of payment which will be issued by a bank on the behalf of a client. It is also perceived as a “payment of last resort” due to the circumstances under which it is called upon. The SBLC prevents contracts going unfulfilled if a business declares bankruptcy or cannot otherwise meet financial obligations.
Furthermore, the presence of an SBLC is usually seen as a sign of good faith as it provides proof of the buyer’s credit quality and the ability to make payment. In order to set this up, a short underwriting duty is performed to ensure the credit quality of the party that is looking for a letter of credit. Once this has been performed, a notification is then sent to the bank of the party who requested the Letter of Credit (typically the seller).In the case of a default, the counter-party may have part of the finance paid back by the issuing bank under an SBLC. Standby Letter of Credit are used to promote confidence in companbecauseof this .
How to Obtain a Standby Letter of Credit (SBLC / SLOC)
There are many aspects that a bank will take into consideration when applying for a Standby Letter of Credit, however, the main part will be whether the amount that is being guaranteed can be repaid. Essentially, it is an insurance mechanism to the company that is being contracted with.As it is insurance, there may be collateral that is needed in order to protect the bank in a default scenario – this may be with cash or assets such as property.
The level of collateral required by the bank and by the size of the SBLC will largely depend on the risk involved, and the strength of the business.Generally speaking, the standby letter of credit process is similar to that of obtaining a commercial loan, with a few key differences.As with any business loan, you will need to provide proof of your creditworthiness to the bank. However, the SLOC approval process is much quicker, with letters often being issued within a week of all paperwork being submitted.
Bongyan Finance Limited is a Standby Letter of Credit (SBLC) provider at 4% leasing fee per year. All our bank instruments are issued from prime banks such as HSBC Hong Kong, Barclays Bank London, Standard Chartered Bank or any AAA rated bank of your choice.Standby Letter of Credit (SBLC / SLOC) Description:
1. Bank Instrument Type: Cash Backed StandBy Letter of Credit (SBLC/SLOC)?
2. Face Value: USD 1 Million (Minimum) to USD 5 Billion (Maximum)
3. Issuing Bank: Barclays Bank London, HSBC Hong Kong, Citibank New York, Deutsch Bank Germany or any prime bank.
4. Age: One Year and One Day (with rolls and extensions where applicable)
5. Leasing Price: 4% of Face Value plus 2% brokers commission (Applicable only if there are brokers in the transaction)
6. Delivery: SWIFT MT-760
7. Payment: MT103 Swift Wire Transfer
8. Hard Copy: Bank Bonded Courier within 7 banking days.
As top sblc providers, our bg and sblc are cash backed and can be used for Discounting, Monetization and Private Placement Programs (PPP). They also can be used as collateral against a loan or credit line to secure Funding for Projects.We also provide Business Loans, SME Loans, International Project Financing, recourse Loans, Non Recourse Loans, Letter of Credit, Standby Letter of Credit, Bank Guarantee, Performance Guarantee Bond, Tender Bond Guarantee, Advance Payment Guarantee, Bank Comfort Letter.If you need more information about this or any other financial instrument please do not hesitate to contact us using the contact us