Nowadays, more and more businesses are getting involved in international trade, but to finalize deals in international trade when both the buying and selling parties are unaware of each other, there is a need for financial security that helps in generating trust while mitigating the risks of finances. This is when a Bank guarantee comes into existence, assuring the payments to the sellers. However, one is required to select the right bank guarantee provider before a deal can be finalized.
Assessing the requirement of BG SBLC!
A BG is a financial instrument issued by a financial institution that assures that the issuer will cover the rules or obligations if the applicant is unable to do so. The issuer will fulfill the contractual term and provide a guarantee for the payment to the beneficiary.
- It ensures that both the buyer and seller meet the payment commitment.
- Security is provided to the investors so they can deal with large projects without worrying about the payment.
- BG SBLC also works as collateral, and one can liquidate their BG SBLC document if one wants to.
- If one is required to bid on various public projects, then there is a need to possess an SBLC BG document.
This is how BG SBLC makes international trading easy, smooth, and streamlined by mitigating the risks of payment from the trading process.
What are the differences between BG and SBLC (Standby Letter of Credit)?
However, both the BG and SBLC seem similar, but the purpose and features of both are different. Here, we will check the differences between the two terms, considering various aspects:
- Usage and common Practice
BG is used in various commercial transactions that include performance bonds, construction contracts, and so on. BG is used when one party has to assure the other one, indicating that the contractual obligations will be met. Like in a construction project, BG is given to the owner of the property, who ensures that the project will be completed according to the specific terms and conditions written in the contract.
An SBLC is a document that is generally used in international trading to ensure financial transactions will be made even if the applicant fails to do so. This is especially useful when large international transactions are involved. It secures large goods shipments, ensuring that the seller or the supplier will be paid even if the buyer fails to make the payment.
- Commitment nature
The commitment under a bank guarantee is contingent on the occurrence of events that are mentioned in the bank guarantee. It does not require presenting the documents for payment. Even the bank is required to pay based on the underlying default.
An SBLC document means the payment will be made to the beneficiary. In this, documents are required that include evidence of non-performance. The process of SBLC works on principles like Uniform Customs and Practice for Documentary Credits (UCP 600) for international standby practices.
- Presenting the documents
In BG, one can claim payment with a simple method, or the claiming process is relatively easy. However, the beneficiary might have to show the proof of non-performance, but the claim process does not include a lot of documents.
In SBLC, specific documents are represented to show the non-performance of the applicant. Some of the papers that one has to represent are invoices, shipping documents, and so on.
How does a bank guarantee provider support global trade?
Choosing a reliable bank guarantee provides various benefits that include:
- Secure trade deals by ensuring the guarantee of payment.
- Companies can enter new markets with business expansion
- It provides funding assurance to the beneficiary; therefore, they don’t have to worry about the non-performance
- With the loan approval, the creditworthiness can be improved.
What are the advantages of a bank guarantee?
- To the applicant
Bank guarantees help in securing loans that would otherwise not be possible because of the risk associated with making and finalizing a deal. This helps in business growth at a high rate, which is highly beneficial for all entrepreneurs.
Financial institutions that provide bank guarantees charge a very low fee, which is 1 to 2% of the transaction amount. Therefore, it is beneficial for an applicant to show their creditworthiness easily.
- To the beneficiary
The beneficiary can enter the contract, ensuring that due diligence has been done.
The bank guarantee adds creditworthiness to the applicant and the contract.
This increases confidence in the transaction.
Know more about the popular term SBLC Lease!
These days, more and more companies are turning to SBLC lease as the method allows businesses to use the document as collateral to obtain a loan. If your company is also struggling with cash flow, then an SBLC lease is the correct term for you. However, many advisors say lease is not the proper term. The correct term is monetize SBLC to turn your SBLC document into cash.
Key attributes to check to navigate genuine lease SBLC providers!!!
- Credibility and reputation
You should always look for the lease SBLC providers with a proven track record that are known for their reliability. Generally, lease SBLC providers are the top financial institutions or have established relationships with the major banks. Check their track record and history of work to identify whether they are genuine, and you will be able to get the right services from them.
- Transparency
You should always opt for a reliable provider who provides transparency in their work with clear terms and conditions. Make sure the lease SBLC provider shows all the terms and conditions ahead of the process. Let the client understand the scope and limitations of the lease SBLC document that they are getting. During your initial consultation, you will get to know whether the financial institution is clear with the terms and conditions or if there is something suspicious about them.
- Work in compliance
Legitimate providers work in compliance with the financial regulations so that both the operations are handled ethically and legally. Check whether the provider works according to the rules and regulations set by the regulatory authority.
- Strong banking relationships
Genuine providers have strong relationships with the best banks that are recognized across the world. These partnerships ensure that the financial instrument is credible and backed by economic strength.
