Definition Standby Letter of Credit (SLOC/SBLC)?

A standby letter of credit is a bank’s commitment of payment to a third party in the event that the bank’s client defaults on an agreement. It is a “standby” agreement because the bank will have to pay only in a worst-case scenario. A SBLC is most often sought by a business to help it obtain a contract.

A financial SBLC guarantees payment for goods or services as specified by an agreement. An oil refining company, for example, might arrange for such a letter to reassure a seller of crude oil that it can pay for a huge delivery of crude oil. The performance SBLC , which is less common, guarantees that the client will complete the project outlined in a contract. The bank agrees to reimburse the third party in the event that its client fails to complete the project. {Note: Small businesses can have difficulty competing against bigger and better-known rivals.} A SBLC can add credibility to its bid for a project.

We, Golden Beach Investment Limited are SBLC providers with enormous knowledge in global financial system. Are also proof for buyer’s credit quality and repayment abilities. The procedure for obtaining a SBLC is similar to an application for a loan. The bank issues it only after appraising the creditworthiness of the applicant.

Power of the SBLC

Small businesses can have difficulty competing against bigger and better-known rivals. A SBLC can add credibility to its bid for a project.

The SBLC is often seen in contracts involving international trade, which tend to involve a large commitment of money and have added risks.

For the business that is presented with a SBLC , the greatest advantage is the potential ease of getting out of that worst-case scenario. If an agreement calls for payment within 30 days of delivery and the payment is not made, the company can present the SBLC to the buyer’s bank for payment. If a contract calls for construction of a building and the builder fails to deliver, the client presents the SBLC to the bank to be made whole.

  • A SBLC is a bank’s commitment of payment to a third party in the event that the bank’s client defaults on an agreement.
  • The process of obtaining a SBLC is similar to a loan application.
  • Thus, the recipient of a standby letter of credit is assured that it is doing business with an individual or company that is capable of paying the bill or finishing the project.