A Standby Letter of Credit (SBLC) is a bank’s commitment of payment to a third party in the event that the banks’s client defaults on an agreement. It is a ‘standby’ agreement because the bank will have to pay only in a worst-case scenario.
SBLC is a Collateral Facility which can be used to trigger a credit line and also for credit enanchement. It can be also used both for recourse and non-recourse loan, can be monetized or the owner can put it directy on a Private Platform trade program.
Further, a SBLC is most often sought by a business to help it obtain a contract. The recipient of a standby letter of credit is assured that it is doing business with an individual or company that is capable of paying the bill or finishing the project. In the worst-case scenario, the bank issuing the SBLC will fulfill its client’s obligations.