SBLC Provider- Standby Letter of Credit (SBLC) / Bank Guarantee (BG) Demand Guarantees (DG)
Financial instruments, mainly Bank Guarantees / Standby Letters Of Credit Demand Guarantees (BG/SBLC/ DG), are monetary contracts between parties.
SBLC. BG and DG are issued by a Bank on behalf of a client at that bank by the bank. The Bank then takes responsibility for the payment should the SBLC. BG ever get a call placed on it to cash it or part thereof. A demand Guarantee matures with that âcashâ being available on that maturity date, unlike an SBLC or BG which must have a call or demand to pay out based on the underlying contract. ·
ADVANTAGES OF SBLC/BG
SBLC/BG denotes irrevocable obligations assumed by banks. The principle is that if a complaint demand is made under a standby letter of credit, an issuing bank must pay, subject to only very limited exceptions.
The drafting of the SBLC should provide that the presentation of a demand (call) would be conclusive evidence that the amount claimed was âdue and owingâ to the Beneficiary of the SBLC. In the case where the SBLC was being used to underwrite a loan then should the loan become in default as the borrower failed to maintain their repayments then the lender of those funds can call upon the SBLC. Â The beneficiaryâs (lender) belief that payment was âdue and owingâ should activate payment.
The great benefit of a standby letter of credit is reflected in the fact that it can be used in practically any situation in which one party to a contract is concerned with the other party’s ability to perform.
The standby letter of credit is neither a contract nor a negotiable instrument and if it is not properly drafted, it will not be considered a guarantee at all. The standby letter of credit or SBLC is a distinct legal instrument, unlike any other. The obligation of the issuer of the SBLC is independent of the underlying contract between the issuer’s customer and the beneficiary of the SBLC.
Demand Guarantees are different in that there is no default clause contained within the instrument. The face value of the instrument is payable on a specific date upon presentation of that Demand Guarantee to the issuing Bank.
In todayâs financial climate where moving large amounts of funds around the globe is both expensive and difficult, Demand Guarantees are a great way to achieve that requirement.
 COSTS FOR ISSUANCE OF AN SBLC/BGÂ
In today’s world Banks will no longer issue an SBLC/ BG without payment prior to the issuance. Bank and Swift fees must therefore be paid by the client to Glacier prior to issuance.
No one would issue a 100 million dollar Guarantee and pay all the costs and hope that the client will pay once their lender (beneficiary) received the SBLC. At Glacier, we work hard to reduce the initial costs for our clients by tailoring the costs with the majority of the fees and costs paid after the receipt of the SBLC into the lender’s Bank account by Swift Mt700/760.
We do that by insisting that the receiving bank confirms Bank to Bank by Mt799 (pre-advice) its readiness to receive and their client has the capacity to settle within a specified time.
By doing this we get the initial costs down from 2.5% of the face to around 0.3 – 0.5% of the face amount depending on the bank and country doing the issuance.
FUNDING AGAINST AN SBLC/ BG
Glacier specializes in the issuance of SBLC / BG/ DG / CGÂ we are NOT LENDERS.
Don’t have a lender? enquire now and Glacier will put you in touch with some.
Glacier complies with all monetary authority regulations in all transfers globally.
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