What is a Standby Letter of Credit, and can a Standby Letter of Credit be ‘Leased’?
A Standby Letter of Credit is a financial instrument issued by a bank. It is a means of payment, but if “leased” will act as a guarantee of payment. It is important to understand the difference between a means of payment and a guarantee of payment.
Standby Letter of Credit as a Means of Payment
As a means of payment, a Standby Letter of Credit underpins many international trade transactions. It is a payment of the last resort. A Standby Letter of Credit underwrites the contract between a buyer and a seller.
If a seller is unsure of payment, they will request the buyer for a Standby Letter of Credit in their favour. If the buyer defaults on payment, the seller can claim the amount owed from the Standby Letter of Credit.
Standby Letter of Credit as a Guarantee of Payment
Can a Standby Letter of Credit be “Leased”? The answer is yes. A Standby Letter of Credit can be “Leased” only if it is a guarantee of payment. This means that the verbiage contained in the “Leased” Standby Letter of Credit must exactly mirror that of a “Leased” Demand Bank Guarantee.
A Demand Bank Guarantee is specifically used for monetisation purposes. The verbiage is precise and exact. It is governed by ICC Uniform Rules for Demand Guarantees, (URDG 758) and is payable of first demand. All banks when lending consider a Demand Bank Guarantee an excellent risk, based on the standing of the issue bank. The same goes for the Standby Letter of Credit when acting as a guarantee of payment.
Like a Demand Bank Guarantee a Standby Letter of Credit can be “Leased” from a Provider. A provider is a company that lends their balance sheet to the “Leased” bank instrument market. In this case the Standby Letter of Credit and the Demand Bank Guarantee. Provider companies are recognised as Hedge Funds, Sovereign Wealth Funds, Private Equity Funds and the larger family offices.
The market leaders in “Leased” Standby Letters of Credit and Bank Guarantees are right here in Geneva, Switzerland. IntaCapital Swiss SA, Geneva are the market leaders in “Leased” bank instruments. They will explain the importance of ICC Uniform Rules for Demand Guarantees, (URDG 758).
IntaCapital Swiss have been facilitating these types of facilities (of referred to as “Leased Bank Guarantees” and Standby Letters of Credit) for over a decade. They have provided access to loans and lines of credit to companies starved of cash funds.
Please visit IntaCapital Swiss SA, for more information.