17/04/2026
Letter of Credit vs Standby Letter of Credit / Bank Guarantee
In trade and corporate banking, these instruments are often mentioned together.
But from a commercial, transactional, and risk-management perspective, they serve very different purposes.
A Letter of Credit (LC) is a primary payment instrument.
It is commonly used in trade transactions where the bank undertakes to pay the seller once compliant documents are presented under the agreed terms.
A Standby Letter of Credit / Bank Guarantee (SBLC / BG), on the other hand, is a contingent undertaking.
It is not the main route of payment. It stands behind the transaction as a layer of protection and is called upon only if the applicant fails to perform or pay.
At Al Huda Financial, we continue to simplify complex financial concepts into clear, practical insights for businesses and professionals.