What is difference between LC and SBLC

1. Letter of Credit (LC):LC is a guarantee provided by a bank on behalf of a buyer to ensure that payment will be made to the seller upon fulfillment of certain conditions (such as delivery of goods or services).It is commonly used in trade transactions where there is a lack of trust between the buyer and the seller, especially in international trade where parties may be in different countries and subject to different legal systems.LCs can be either revocable (can be modified or canceled by the issuing bank without notice) or irrevocable (cannot be modified or canceled without the consent of all parties involved).LCs are typically used to mitigate the risk of non-payment or non-performance by one party in a transaction.
2. Standby Letter of Credit (SBLC):SBLC is also a bank guarantee, but it is used as a backup payment mechanism in case the buyer fails to fulfill their payment obligations.Unlike LCs, SBLCs are not meant to be used for regular trade transactions. Instead, they are used as a form of security or assurance that payment will be made if certain conditions are not met.SBLCs are often used in project financing, construction contracts, or other situations where there is a risk of default or non-performance by one party.SBLCs can be drawn upon by the beneficiary (usually the seller or contractor) if the buyer fails to fulfill their obligations, such as making payment or meeting project milestones.

In summary, LCs are used to facilitate payment in trade transactions, while SBLCs are used as a form of financial security or guarantee against non-performance or default.