An Explanation of a Standby Letter of Credit, and why it's such a popular bank instrument!
Standby Letter of Credit (often referred to as an SBLC) is a bank instrument used between a buyer and a seller to facilitate international trade between these two parties that don't know each other and have different laws and regulations.
Typically, when a buyer needs to procure a product from a seller, the seller ensures that they get paid by having the buyer contact the buyer's bank and issue an SBLC to the seller's name.
This financial instrument (SBLC) guarantees the payment to the seller incase the buyer defaults in payment. Said differently, the bank will pay the seller if the buyer chooses not to have good faith in conducting a business transaction. These bank guarantees (SBLCs) are popular instruments because they provide different options than other bank notes.
SBLCs for instance can be leveraged to get a bank loan at 2x-4x the value of the SBLC. But they can also be liquidated by the seller at a discount offering immediate cash to purchase raw materials; but, more importantly, this instrument can also be leveraged in various vehicles such as private placement & capital enhancement programs.
For organizations that require a trusted brand to support them in monetizing their SBLCs, LineofCredit.AI provides a series of services.
They include:
