Stand by letter of credit
SBLC(Stand by letter by credit):-
Shanky Finance stand by letter of credit (SLOC) is a financial instrument used primarily in international trade and domestic construction projects. The SLOC is issued by a bank on behalf of the buyer and guarantees that the seller (beneficiary) will receive payment upon the presentation of specified documents in the event the buyer fails to pay the beneficiary according to the terms of the
Shanky Finance SLOC Guarantees Payment
SLOCs are used primarily by buyers to assure sellers of their creditworthiness and ability to pay by guaranteeing payment. The SLOC had its genesis as a means of circumventing a banking law that proscribes banks from assuming liability for the debt obligations of third parties. The SLOC fulfills essentially the same purpose as a bank guarantee without the bank committing any of its assets to the transaction. Although the bank is liable for payment on presentation of an SLOC and supporting documents, bank assets are not committed to the transaction because the buyer has either deposited sufficient funds with the issuing bank or,more typically, has been approved for a loan guarantee based on standard loan underwriting practices.
Shanky Finance How the SLOC Works
The buyer applies for an SLOC at a commercial bank, presents either the collateral or credit substantiation to justify issuance of the SLOC and pays the bank fee. As part of the process, the buyer provides the beneficiary information, the requisite shipping documents necessary for payment, the information for the bank representing the beneficiary (advising bank) and the specified period the SLOC is valid (usually no longer than 12 months). In the event that the buyer fails to pay the seller, and the seller presents all of the specified documentation listed in the SLOC to the issuing bank within the specified period, the issuing bank will pay the seller’s advising bank the amount due.
Shanky Finance Standard SLOC Supporting Documentation For International Trade
The SLOC pays in the event the buyer defaults based upon the presentation of specific supporting documentation. The supporting documentation is a matter of negotiation and can include virtually anything agreed upon by the buyer and seller. Examples of usual documentation include invoice and packing list; shipping documents, including bill of lading, transport documentation and insurance certificates; or official documents, such as point-of-origin, inspections certificates and customs clearance certificates. The list of supporting documentation can be quite extensive.
Requirements for Standby Letters of Credit By Shanky Finance
As with standard letters of credit (LOCs), SLOCs can come with a variety of requirements beyond that of the buyer paying upon presentation of substantiating documentation. It is best for the buyer to consult with an international shipping specialist on the appropriate “requirement” language to incorporate into the SLOC to assure that all the interests and concerns of the buyer are included and protected.