Standby Letter of Credit (SBLC)
A standby letter of credit serving as a payment guarantee, activated only in the event of the debtor's default.
A Standby Letter of Credit (SBLC) is a hybrid financial instrument combining features of a letter of credit and a bank guarantee. Unlike a commercial L/C, the SBLC is a guarantee instrument called upon only in case of default.
The SBLC may be governed by the UCP 600 or the ISP98 (International Standby Practices). If the buyer pays normally, the SBLC expires unused. In case of default, the seller presents a default statement and stipulated documents to obtain payment.
The SBLC is widely used in US trade and international public procurement. Its advantages include:
- Often lower cost than a commercial L/C
- Flexibility in drafting conditions
- Ability to cover non-commercial obligations (rent, services)
It is particularly suited to medium-term commercial relationships with established partners.