Posted in Finance

Standby Letter of Credit—Frequently Asked Questions

bank instruments

Investing in various instruments like SBLC or BG is very popular nowadays and people are getting some enormous benefits of the same. However, there are a few risk factors investing on the same and this is the reason why you need to be really cautious about investing in such instruments.

However, there are a few frequently asked questions about investing in SBLC. As these precious and valuable bank instruments can give you a lot of benefits, a lot of people tend to invest in these instruments without asking the relevant questions.

Here is why, here are a few frequently asked questions about SBLC which will help you understand the matter in a better way –

1.    What exactly is a negotiable or transferable letter of credit?

A – Letters of credit are sometimes referred to as negotiable or transferrable. The issuing bank will pay a beneficiary or a bank that is nominated by the beneficiary. As the beneficiary has this power, they may ‘transfer’ or ‘assign’ the proceeds of a letter of credit to another company.

2.    Can the letter of Credit be discounted like an invoice?

A – The letter of credit can be discounted but only if it is payable after 90 days or if it is transferrable. In this case the beneficiary has the privilege of assigning it to be payable to a funder. This is so that the funder will provide the beneficiary with a discounted value just after the terms of the letter of credit have been fulfilled.

3.    How to Fund a SBLC?

A—The bank has to receive typically any assets or cash as collateral in order to issue you a standby letter of credit. And there is a particular fee for the service and it comes as a percentage of the letter of credit value.

4.    How these letters of credits are governed?

A – The International Chamber of Commerce Uniform Customs and Practice for Documentary Credits governs the way in which these instruments are to operate.

5.    Is there any non-payment procedure under SBLC?

A – No. the SBLC will always be paid depending on the event – like whether or not the instrument is still under operation and the beneficiary is able to meet with the criteria under the letter.

6.    What if my bank fails to pay?

A – If in any case your bank fails to pay, (which is more unlikely to happen), a stronger or another bank will confirm the letter of credit.

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Author:

We are specialized in Financial Instruments: BG, SBLC, MTN, LTN, Montization, Funding, Buying and Selling Financial Instruments, and Financial Consulting.

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