SBLC or Stanby Letter of Credit, has build a horible reputation. By people who have no knowledge of the use of this financial instrument, and bank guarantee.
While many people say, these are "SCAMS",
WHY? Many people who are not knowledgeable about finance, trade or deals. Have no idea what they are talking about, SBLC/BG are simply bank guarantees. Which provide a collateral for banks to use in order to provide a loan.
These deals, are part of a way which business such as shipping, import/export and orther companies, who don't have 100% of the financial capacity of a deal use these financial tooks. which can help them fuffil orders, and run their business without a financial short fall.
Here is a small example of how SBLC/BG work;
Lets say for example you have an order for $100 million, but your business only produces in sales about an average of $30-$50 million dollars.
And your revenues just a tad below that number, then you will probably not have the financial means to fuffil the order of $100 mil, because of the capital reserves you have.
Thus you will only lets say at any time have maybe 5-10% or maybe 20% of the total value of the $100 mil order, so how do you fuffill this? Well you can go to your local bank and ask for a traditional loan, but these loans could take months to get approved, if the bank does finally approve you.
Or you can find a credible institution that does SBLC, which can provide the capital directly to you. Here one example.
You need $100 million dollar loan, but you have 5% or 10% or maybe less. And you have lets say 3 weeks to fuffill this from your client? Then you find a reputable SBLC, most SBLC only ask for 5-30% of the total cost of the loan.
Why? Because an SBLC/BG is a bank guarantee. Essentially kind of like an insurance, or a bank guarantee that tells the bank if you can get a (bank guarantee) to the bank. The bank then says, you have the ability to repay the loan, thus why most of these loans are for 1 year and 1 day. With a performance clause.
While traditionally, logistics, and manufacturing and import/export companies used. SBLC/BG in the past, today that is a very different story. You are now able to use SBLC, and BG, for many different purposes, such as Trading, block trades, obtaining a loan, and putting the SBLC on high earning platforms.
But is every SBLC is the same of course not, that is why you must have to check who you do business with to ensure. That you are getting something, which is legitimate and can solve your problem.
