The Difference Between a Standby LC & a Bank Guarantee
The Difference Between a Standby LC & a Bank Guarantee
At first glance, a Standby Letter of Credit (SBLC) and a Bank Guarantee (BG) seem interchangeable. Both serve as a safety net when a buyer or contractor defaults. Both are issued by banks. And both can be called if the counterparty fails to perform. But legally and operationally, they’re governed by very different rule sets—each with its own impact on how claims are made, processed, and paid.
Side-by-Side Comparison
| Feature | Standby LC (SBLC) | Bank Guarantee (BG) |
|---|---|---|
| Instrument Type | Letter of credit (independent undertaking) | Demand guarantee (independent undertaking) |
| Rule Set | Typically ISP 98 or UCP 600 | URDG 758 |
| Use Regions | US, Latin America, offshore finance centers | Europe, MENA, Asia |
| Presentation Period | As stated in text or up to one year | 30 days after expiry unless otherwise stated |
| Transferability | Can be made transferable | Typically non-transferable |
| Common Uses | Financial standbys, bid, performance, payment | Advance payment, warranty, construction contracts |
UCP 600 is the rulebook used for commercial letters of credit and occasionally applied to SBLCs. It defines how documents are examined, what constitutes a valid presentation, and how banks handle discrepancies. SBLCs under UCP 600 follow strict documentation and timing rules, with a five-day examination window.
URDG 758 is the go-to rule set for Bank Guarantees. It allows automatic extension clauses, sets a 30-day presentation period if none is stated, and gives clearer guidance on when a demand can be rejected. It's widely adopted in Europe and Asia for structured performance guarantees, especially in construction and EPC contracts.
ISP 98 was designed specifically for SBLCs. It modernizes standby procedures, allows electronic presentation, and clarifies when a bank is obligated to pay. It also includes rules on partial drawings and variation clauses—something UCP 600 lacks. Most US-issued SBLCs today are governed by ISP 98.
Why It Matters
Using the wrong instrument can delay execution, block payment, or breach contract terms. A European EPC contractor asking for a BG under URDG 758 won’t accept an SBLC under ISP 98. A US beneficiary may insist on an SBLC because their compliance process doesn’t handle guarantees. The rule set shapes enforceability and comfort.
How Financely Helps
- We advise on which format suits your deal based on jurisdiction, counterparty and contract requirements.
- We prepare draft wording aligned with UCP 600, ISP 98 or URDG 758—so your instrument is accepted first time.
- We arrange issuance through top-tier banks on a best-efforts basis, including KYC, fee structuring and MT 760 delivery.
Unsure whether you need a standby letter or a guarantee? Send us your draft contract and we’ll advise on the correct format.
Request Advisory SupportFinancely Group is a capital advisory firm. We arrange standby letters of credit and demand guarantees on a best-efforts basis through licensed issuing banks. All services are subject to KYC, regulatory approval and a signed engagement. We do not issue instruments directly.
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