A Standby Letter of Credit is very similar to a Bank Guarantee and are employed in similar situations. A Bank Guarantee or Banker’s Guarantee (BG) is a banking arrangement where a bank agrees to substitute its own credit in place of its client.
Different from a traditional Line of Credit (which is intended to be paid) a Bank Guarantee is a contingent obligation. We say contingent meaning that it is dependent on the happening of an event, which may or may not actually ever occur. More often than not a BG is not paid because the event, project or deal does not happen, i.e. the deal never goes through or the project never gets off the ground.
Everyday, banks of all sizes around the world, issue Bank Guarantees (BG) on behalf of their clients for a vast array of different purposes. A BG (Bank Guarantee) is never issued for the bank itself as it is always on behalf of its clients, and the full liability lies with the client.
The most common type of BG is performance-related. This is where a bank tells the beneficiary if the client does not follow through on certain requirements, the bank will step in and pay. A common example is a bank guarantee issued to a shipping company for the release of goods without the Bills of Lading (BOL). Another common use is as a substitute for cash payment. For instance BG may be issued to a utilities company to guarantee an account in lieu of a cash deposit, or in lieu of a cash deposit to support a tender.
There are also less common Bank Guarantees (BG) issued for financial reasons. A common example of this would be when an international corporation in one country desires to borrow from a bank for its subsidiary in different country. The corporation can ask their bank to issue a Bank Guarantee to the subsidiary’s bank guaranteeing the loan. The BG would then only be paid if the client were to default.
The Standby Letter of Credit (SBLC or SLC) was invented by U.S. banks because under the Glass-Stengel Act. Banks in the U.S. were not legally permitted to issue a Bank Guarantee, so they found an acceptable and legal “loop hole” by formatting their BGs as Letters of Credit and referring to them as a Standby Letter of Credit or SBLC. The term “standby” implied that the Letter of Credit was “contingent” upon certain terms and conditions.
The terms SBLC and BG are virtually interchangeable; both are issued for similar purposes and intents. However they are not technically the same thing. The major difference between a BG and a SBLC is legal. A BG is a simple obligation subject to civil law whereas a SBLC is issued subject to UCP 500 and ISP 98 (banking protocols).
Both SBLCs and BGs are most commonly delivered via a SWIFT transaction but can also be delivered in other ways that are less efficient.
The bank guarantee is one of many bank instruments which organizations use to obtain and secure financing for to grow, complete projects, and perform other tasks.
Before pursuing a bank guarantee, people should sit down with financial consultant to discuss the various options available to them and to determine which would be most appropriate. Having a bank guarantee is also not a substitute for the lack of your ability to cover the financing for a project.
SBLCs are not tradable securities. They are also not negotiable instruments because of the fact that they are issued for a specific purpose covering an underlying obligation and this purpose and underlying obligation cannot be transferred to another party.HARVEST FINANCE offers individuals, companies, agencies and corporations Leased Bank Instruments. Leased Instruments can be obtained at minimal expense to the client compared to many other banking options.
Leased Instruments includes: Leased Bank Guarantee, Lease BG, Lease Insurance Guarantees, Lease MTN, Lease Standby Letters of Credit (Lease SBLC) and Lease Third Party Guarantees such as a standby forward commitment to purchase or a standby loan.
If you are an investor or principle looking to raise capital, we will be happy to answer your questions regarding this opportunity. We can provide you with all the details and information about the services we offer and the options available for you.
HARVEST FINANCE can help you lease SBLC’s to get your project funded by providing you with yearly renewable leased bank instruments. We work directly with providers of leased bank instruments.
The lowest instrument we usually provide is 10 million USD or more. Smaller amounts are occasionally done depending on circumstances.
The documents required will vary depending on your intended purpose, the instrument, and the bank(s) that we decide to process your request with. Please have as many documents as possible ready to help expedite your request. Fill out your application here, or contact us today to get started.