How Bank Guarantee Is Better Than Standby Letter

Of Credit

• A standby letter of credit and bank guarantee is very similar and mostly used while making an international transaction. But they also used as prove to show your access to cash on a short notice for purchases, sales and transactions. But a bank guarantee provides you more protection in case of short notice rather than SBLC.

Let’s discuss how Bank Guarantee is better than SBLC

Bank risks:

• Even though in both cases of SBLC & Bank Guarantee, a bank need to face certain risk but the amount of risk decreases with bank guarantee as it offer more protection because the bank will process the request depending on your credit standing.

Protection difference:

• Main purposes of both documents are same but between them a legal difference can be seen. A SBLC only protects the seller, where a bank guarantee protects both seller and the buyer.

Example: If you are a buyer then a bank guarantee will protect you in cases of not receiving the purchase item or if the item is damaged in the time you receive.

• But if case of SBLC letter of credit you will get your item but there is no guarantee whether the item will receive on time or not.

Performance difference:

• In case of international sales, the most preferred way chooses by the sellers is Bank Guarantee.

• And the reason for this, in case of Bank Guarantee a seller gain a fast, guaranteed payment, including currency conversion, if it is needed, direct to their bank account without facing any problem. But this is not the same with a Standby Letter of Credit.

Payment Guarantee:

• If you are a seller then to ensure the payment for the items you sold, you can ‘call in’ bank guarantee.

• When you buy something and do not make a timely payment, then the seller can contact the bank and ask to act on the bank guarantee.