The best and safest way provided by a bank and financial companies to monetize your investment are bank instrument and a Standby letter of credit and bank guarantee’s are one of them. Both standby letter of credit and bank guarantee are very similar things as both of them used in while making international transactions. Other use of these documents is they acts as a proof of access to cash on a short notice in U.S. sales, purchases and transactions.
Bank risks: A bank face risk with the both of the documents but the amount of protection offer by a bank guarantee is more; as a result the amount of risk faced by a bank is also more with bank guarantee. As both of the documents caries a certain amount of risk so there is no automatic approval in these documents. After the bank makes sure of your credit standing then they will process your request for SBLC funding or bank guarantee.
Similar terms: The basic similarity between these two documents that they ensure the sellers that the seller will receive the payment for the purchase. To ensure the payment for the things a seller has sold, all they have to do is ‘call in’ in the SBLC or bank guarantee. When buyers do not pay the seller in the time limit, then the seller can ask the buyers bank to act on the SBLC or bank guarantee to receive the payment.
Protection terms: Even though both of the documents ensure a sellers payment but there is a huge protection difference in both of them. A standby letter of credit protects only the seller but a bank guarantee not only protects the seller but it also protects the buyer too. Most of the buyers prefer bank guarantee as it provide protection in case you never receive the item you purchase from the seller or when you receive the item in a damage condition. A bank guarantee can reimburse the money from that type seller.
Performance term: Just like as the buyer prefer a bank guarantee, the sellers more prefer the standby letter of credit. And the reason for that is SBLC helps the seller receive their payment fast and guaranteed, including currency conversion, in case it needed, directly to their bank.