LET US COMPARE LETTERS OF CREDIT TO SBLC LETTERS OF CREDIT

THERE ARE A FEW KEY DIFFERENCES BETWEEN STANDBY LETTERS OF CREDIT (SBLC) AND REGULAR LETTERS OF CREDIT (LC). THE MOST IMPORTANT DIFFERENCE IS THAT AN SBLC IS A GUARANTEE OF PAYMENT, WHILE AN LC IS SIMPLY A METHOD OF FINANCING. With an SBLC, the issuer (usually a bank) guarantees to make payment on behalf of the applicant (the buyer) if the seller fails to perform. The buyer does not have to pay anything upfront but will be responsible for any fees associated with the issuance of the SBLC.

AN LC, ON THE OTHER HAND, IS SIMPLY A LOAN THAT IS COLLATERALIZED BY THE ASSETS OF THE APPLICANT. THE APPLICANT MUST PUT UP SOME FORM OF SECURITY (USUALLY CASH OR ANOTHER ASSET) IN ORDER TO GET THE LC. IF THE BUYER DEFAULTS ON THE LOAN, THE LENDER CAN SEIZE THE COLLATERAL.

So, which one is better? That really depends on your situation. If you are confident that you will be able to make all of your payments on time and don't mind paying some fees upfront, then an LC might be a good option for you. However, if you are worried about defaulting on your loan or if you don't have any collateral to put up, then an SBLC might be a better choice.