Today we want to know whether a bank guarantee is better than a Standby letter of credit. But first of all we will need to understand what is bank guarantee and what is a standby letter of credit.
WHAT IS BANK GUARANTEE (BG): https://kingrise.finance.blog/2020/04/14/what-is-bank-guarantee/ A bank guarantee is a promise from a bank or other lending institution that if a particular borrower defaults on a loan, the bank will cover the loss.
WHAT IS STANDBY LETTER OF CREDIT (SBLC): https://kingrise.finance.blog/2020/03/31/what-is-standby-letter-of-credit-sblc/ A standby letter of credit (SLOC) is a guarantee of payment by a bank on behalf of their client. It is a loan of last resort in which the bank fulfills payment obligations by the end of the contract if their client cannot.
Bank Guarantee and SBLC (Standby Letter of Credit) are both financial instruments but as you can see from the above definitions, each of them has a very different financial purpose. Most banks can issue either a Standby letter of credit or Bank Guarantee so from time to time our clients often ask us which is better.
If your aim or plan is to have your Bank Guarantee or SBLC monetized, discounted or funded so you receive the most amount of cash from the instrument as possible…. Then a BANK GUARANTEE will be BETTER! But if your aim is to get a loan or credit from a bank then SBLC will be BETTER for to secure loan from your bank.
In bank instrument monetization, funders who monetize Bank Guarantees and SBLC (Standby Letter of Credit) prefer Bank Guarantees and generally pay MORE for Bank Guarantees than they do for SBLC's. Also, Loan to Value (LTV) ratio on Bank Guarantee tend to be higher than SBLC so if your aim is to maximize the monetized return from your financial instrument, then apply for a Bank Guarantee.
Kindly contact Us today for all your funding needs, including loans, project financing, BG, SBLC and Letter of Credit.
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