The perfect back-up
The stand-by letter of credit (SBLC) is a bank guarantee in the form of a documentary credit. SBLCs are used to:
- guarantee any failure to pay on the part of the purchaser/importer;
- guarantee any failure to perform the agreement on the part of the supplier/exporter.
The SBLC is only used if what is agreed between the two parties is not performed or is performed incorrectly. Only the documents requested by the terms of the SBLC are taken into consideration.
SBLCs are subject to the Uniform Customs and Practice for documentary credits (UCP). This means that where commercial documents have to be presented, the UCP sets out how they may be verified.
An SBLC may also be confirmed, whereas a guarantee issued by the beneficiary’s bank requires a double commitment, since the issuing bank has to counter-guarantee the guarantor bank.