Similarity and difference between Standby letter Of credit and bank Guarantee
Bank guarantee and standby letter of credit mostly used
when one makes an international transaction and for the purpose of U.S. sales, purchases and transactions when you need proof that you can access cash on the short notice.
If you are making a purchase then bank guarantee is safer
and in case of selling a standby letter of credit is more useful.
the Similarity in bank riSk:
In case of both SBLC letter of credit and bank guarantee a bank face risk,
but since bank guarantee offers more protection so the risk also becomes higher.
You will not have an automatic approval in case of this type of document.
Due to the involvement of the risk, banks might accept or deny your request
depending on your credit standing.
SimilaritieS Of bOth: One of the main similarities of both standby letter of credit and bank guarantee is for
the purchase you made bank will give a guarantee of payment to the seller.
Sellers can ensure their payment for the things they sold, by "call in" the bank
guarantee or standby letter of credit.
When a seller sold their things to you they normally expect a direct payment but if you
fail to give payment in time, then the seller can ask your bank to act upon the standby letter of credit or bank guarantee for the payment.
 These days’ standby letter of credit and bank guarantee document are very
popular due to the uncertainties of international sales and currency exchanges.
differenceS in prOtectiOn:
There is a very big difference can be spotted in the standby letter of credit
and bank guarantee, despite both of them ensure the payment of seller.
In case of bank guarantee as a standby letter of credit, it also protects the
seller but it also gives protection to the buyer too.
Since both documents provide protection to the seller, they can choose
either of them.
But buyers more prefer a bank guarantee because they can give
you protection if the seller did not send your purchase item or it the item is damaged in the time you receive and reimburse the money from the seller.
the difference in the perfOrmance: In case of an international sale, a seller more prefers a standby letter of credit over
bank guarantee.
They more prefer a standby letter of credit because it is not only you will receive your
guaranteed payment fast and it also involves currency conversion, if needed.
But a bank guarantee is triggered only when either buyer or seller is non-performing.