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Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 10130
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Qestion about SBLC, how does that work,

Customer Question

qestion about SBLC, how does that work,
Submitted: 1 year ago.
Category: Finance
Expert:  Lane replied 1 year ago.

Hi,

...

A guarantee of payment issued by a bank on behalf of a client that is used as "payment of last resort"if you fail to fulfill a contractual commitment of some sort with a third party.

...

Standby letters of credit are (in theory) created as a sign of good faith in business transactions, (but in reality servce as proof of a buyer's credit quality and ability to repay.

...

The bank issuing the SLOC will perform brief underwriting (because THEY are now accepting the risk)to make sure of your credit quality, then send notification to the bank of the party requesting the letter of credit (typically a seller or creditor).

Expert:  Lane replied 1 year ago.

If you don't pay the bank that issued the SLOC is on the hook to make payment