PLEASE CAN ANY BODY THROW LIGHT ON THE DIFFERENCE BETWEEN A STANDBY LETTER OF CREDIT AND BANK GUARANTEE. AGAIN YOU ALSO THROW MORE LIGHT ON HOW BANK GUARANTEE OPERATES STEP BY STEP.
Both look similar,but they are two different things applied in entirely different scenarios.SLOC is used in International fincance dealings where the seller asks for a standby letter of credit,if the buyer fails to make payment on the date specified in the contract. SLOC ensures that trasaction goes according to the plan,whereas bank gurantee tends to decrease the loss if the transaction does not go according to the schedule.
how to fix bad credit
While both being non-funded or contingent facilities i.e. they depend on
the happening of a certain event, the basic difference between the two
is that of the parties involved. In a bank guarantee, three parties are
involved; the bank, the person to whom the guarantee is given and the
person on whose behalf the bank is giving guarantee. In case of a letter
of credit, there are normally four parties involved; Issuing Bank,
Advising Bank, the applicant (importer) and the beneficiary.
An applicant should not be viewed as being a party to either the LC or a guarantee transaction.
The LC/Guarantee instrument once issued, belongs to the beneficiary, and binds the issuing bank to the beneficiary. The rights and obligations between the applicant and the issuing bank, and that between the beneficiary and applicant, should be viewed as being outside the scope of the LC/Guarantee contract.
Apart from the different rules which govern each type of instrument (although there is a degree of overlap), the fundamental difference is that whilst it is imperative for a SBLC to contain an expiry date, a guarantee may or may not contain an expiry date; may be open ended; and/or may expire on the occurence of an event.
There is also the matter of applicable law. A demand guarantee would normally be subject to the law of the issuing country, whereas a sblc would not generally contain a jurisdiction clause.
However, applicable law, and place of jurisdiction is likely to be prescribed under the terms of the contract.
IMHO, and in the light brought by URDG 758, a big difference is that the Stand By L/C(Issued as per UCP9 will cease its effect on expiry date, Bank guarantee continues until withdrawn or taken up or delivered by the issuing bank.
Other comments appreciated