SBLC: Meaning, Types, And How to Obtain One
When you own a trade business in the UAE, you need to know about different categories of financing and commercial instruments with respect to export and import of goods. The instrument of standby letter of credit or SBLC in short, is a payment obligation document issued by a bank. It basically tells that when a payment is unfulfilled wholly or partially, the bank takes the initiative to make the payment in full to the concerned seller in the trade network as per the conditions laid on the contract deal.
Performance Standby Letter of Credit
Speaking about the categories of the letter of credit, the performance standby letter is one of the broad types of financing instruments that is used by the bank and trading partners often. There are certain non-financial obligations as per the contractual details among the trade partners. Aspects such as work quality, the time to process the deliverables, cost issues, etc. are being encompassed under the contract. The letter enumerates these things compiled by the trade law in a regulatory framework. When a concerned party does not get desired results from the perspective of these aspects, the bank shoulders the responsibility of fulfilling those.
Financial Standby Letter of Credit
As the name suggests, the letter is all about meeting the financial obligations as per the contractual agreement. Most of the letters of credit in the circuit of international trade are of this nature. Banks play the primary role in framing and if necessary, implementing this instrument. You can come across such letters of credit in situations where there are large purchase contracts being processed. The letter helps to reduce the risk of non-payment. It is also regarding an increased level of credit worthiness of the concerned party in the trade network.
Obtaining the Standby Letter of Credit
You need to submit all the relevant documents related to the trade business to which you are involved. Processing of the letter doesn’t take much time, unlike application for loans. You need to pay a certain amount of service charge to the bank before obtaining the letter. One of the major points of the letter is when the obligations are totally fulfilled among the parties or trade partners; you have the flexibility to cancel the functionality of the letter without any compulsion to pay additional service charges.
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