The SBLC, just like the LOC, can be used for both international and national trades and they have a lot of benefits to count on.
However, there are a lot of differences between SBLC and LOC and SBLC actually has nothing to do with the classical documentary Letter of Credit. The letter of credit provides security from the bank, which is presumably a disinterested third party. If the bank's customer fails to do something like if they cannot pay on time, complete a project on time, or satisfy certain terms of an agreement the bank – not the customer who failed to deliver – pays the beneficiary.
However, the SBLC is more like a safety net and people normally avoid using it. You only need to use the safety net when something goes terribly wrong. With a commercial letter of credit, on the other hand, everybody involved hopes and expects that payment will occur. However, SBLC funding is the best way to keep the safety net for the better future.
When it comes to the domestic transactions, the SBLC can be frequently used and these are actually quite unique because they can include a performance component or negative performance, if you prefer. If a service is not performed, the beneficiary gets paid.
So how to get a Standby Letter of Credit?
All you need to do is approach your bank and ask for one. Talk to someone in your bank’s commercial division or someone who is in the international trades department. But make sure you don’t make any hurry while making a decision and understand all the criteria properly and ask relevant questions before you make any decision.
These things are really complicated and they have a lot of terms and conditions to be fulfilled and that too cut to cut every time. Therefore, be sure to work closely with your bank and your attorneys to understand what you need to do to collect the payment – both the letters of credit are notoriously complex, and meeting all of the requirements is difficult. If you don’t meet all of the requirements exactly, you won’t get paid.