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