Standby Letter of Credit (SBLC)

A Standby Letter of Credit (SBLC) is a financial instrument guaranteeing payment, acting as a secondary payment mechanism if the applicant fails to meet contractual obligations. A bank issues the SBLC to ensure that the beneficiary receives the agreed payment.

Financial institutions and corporations use SBLCs in international trade, construction projects, and large purchases. These letters serve as risk mitigation tools, providing security to vendors and contractors.

An SBLC has specific types such as performance guarantees, which ensure contract fulfillment, and payment guarantees, which cover financial transactions. These letters include detailed terms, such as expiration dates, and required documentation for claims.

The involved parties include the applicant (who requests the SBLC), the issuing bank (which guarantees the payment), and the beneficiary (who receives the payment). Each party must adhere to the terms and conditions specified in the SBLC.