Standby Letters of Credit vs. Letters of Credit
AltFunds Global
We help successful businesses leverage exclusive banking programs so that they can fund all their capital needs.
Many of our clients ask me about standby letters of credit vs. letters of credit.
A Standby Letter of Credit (SBLC) is a guarantee provided by a bank on behalf of a client to a beneficiary. The bank promises to pay the beneficiary a specified sum if the client fails to fulfill its obligations according to the contract terms.
Purpose: The SBLC serves as a form of security or collateral for the beneficiary, ensuring they receive payment even if the client defaults on the contract.
Types: There are two main types of SBLC:
Issuance: The client requests the SBLC from their bank, and the bank issues the SBLC to the beneficiary. The beneficiary holds the SBLC as security for the contract.
Activation: If the client fails to fulfill its obligations, the beneficiary can demand payment from the bank. The bank will then pay the beneficiary the amount specified in the SBLC.
Cost: The cost of an SBLC includes issuance fees and an annual maintenance fee, both of which are paid by the client.
Note: The SBLC differs from a letter of credit, although the two are often used interchangeably. A letter of credit is a commitment by the bank to pay the beneficiary if the client fails to fulfill its obligations, while an SBLC is a guarantee.
If you are interested in learning more about SBLCs and how to leverage them, reach out to us at www.altfundsglobal.com