A Standby Letter of Credit (SBLC) is a written obligation of an issuing bank to pay a defined sum of money to a beneficiary on behalf of their customer in the event that their customer fails to fulfil a contractual commitment to the beneficiary. It is important to note that regardless of any disputes between its customer and the beneficiary the bank is obliged to pay upon first demand.
Did you know that – “Standby L/cs originated in the United States as it was not possible to issue BGs there. This was because the banking legislation in U.S. forbids banks to assume guarantee obligations on behalf of their clients. To circumvent this rule, the U.S. banks created the SBLC.”!!!