Text Size

Standby Letters of Credit

A GBCIB Standby Letter of Credit functions as an assurance that an applicant will carry out the obligations affirmed within a contract.

A standby letter of credit "stands by" in case you are unable to live up to an obligation using your original means of payment. If the standby L/C guarantees performance-such as the delivery of certain services or goods within a specified period of time-it is often referred to as a performance L/C. Should your buyer provide documentation, which confirms that you did not meet the terms of the underlying contract, the performance L/C requires GBCIB to pay a specified amount to your buyer. In essence, a performance L/C substitutes GBCIB's creditworthiness for your own. There are several types of standby L/Cs including:

 

Bid

This type of standby L/C guarantees you will honor the bid you have won and proceed to contract with the buyer. On average, a bid standby L/C is 5% of the estimated contract value.

 

Advance Payment

When a buyer submits a down payment in advance on a project, they may require this type of L/C. Should you be unable to fulfill the terms of the contract, the advance payment standby allows the buyer to make a draw under the advance payment standby L/C, usually equal to 100% of the down payment.

 

Performance

This type of L/C guarantees the provision of particular goods or services, within a specified time-frame, under the contract.

 

Warranty/Maintenance

Buyers of capital equipment often require guarantees that the equipment will operate in a specified manner, within a specified time-frame. This L/C guarantees that you will honor the obligations of the contract, or the buyer can make a draw on the L/C.

 

Bank Guarantees

Most U.S. banks cannot issue bank guarantees on behalf of their clients, due to federal regulations. However, GBCIB can issue a standby L/C to a bank in a foreign country, which basically provides collateral for the local bank to convince them to issue a local guarantee to your buyer. This L/C is similar to the bank guarantee in that GBCIB's creditworthiness is substituted for your own.

 

 

We have branches in California and Washington States to serve your financial needs.

For detail of Standby Letters of Credit, please contact our International / Letter of Credit Team.  For forms to apply for Standby Letters of Credit, please click here.

 

|| TOP ||