Standby Letter of Credit
Selecting the right Standby Letter of Credit (SBLC) provider is crucial for your business. It largely depends on your business needs and how strong you are financially. If your business has a high turnover and a good credit history with your bank, it’s often better to go with local banks for issuing an SBLC.
Collateralized SBLC
When dealing with most banks, they will ask you to have 100% collateral to back up the Letter of Credit. This means you need to secure the credit with assets or cash equivalent to the value of the credit.
Be mindful that banks will also charge extra fees for using the Letter of Credit, usually between 2% & 6% annually, plus some initial issuing charges.
Knowing these costs is important to use SBLC effectively for your business needs.
Unsecured SBLC
In some rare situations, if you don’t have enough collateral, a bank might still issue an unsecured LC if they think the transaction is low risk.
In case the bank insists on collateral and you don’t have it, you will need to find a third party to provide it.
It’s crucial to understand these aspects to avoid any unforeseen complications in your business transactions.
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