Bank Guarantees/Standby Letters of Credit (SBLC) are used to secure payment of a stated sum of money to a named party (the beneficiary) in the event of non-performance or default by a party in the relationship. Payment will be made by beneficiary bank on presentation of a compliant written demand for payment by the beneficiary. Bank Guarantees can be used as a substitute for cash deposits with counterparties, freeing up working capital and potentially securing better contract terms. There is no difference between a Guarantee and an SBLC in regards to their intended purpose however they may be governed by different rules and local laws.

TYPES OF GUARANTEES/SBLC

There are two distinct types of Guarantees/SBLC:
Performance
Underpin performance based, non-monetary obligations and payment under the Standby which are triggered in the event of non-performance of a future event. Examples of performance Guarantees include: Bid/ Tender Bond, Performance Bond, Advance Payment, Warranty or Maintenance Bond, Workcover Bond (Australia only), customs, and Insurance. Financial Have two types of functions 1) Support facilities that are provided or 2) Used when protection is required from when a party (applicant) defaults on their financial commitments or obligations under a contract or agreement. Examples of Financial Guarantees include: Collateral Guarantee/SBLC, Financial Guarantee/SBLC, Rental Bond, Intra-Group Guarantee/SBLC and Utilities Bond.

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