Lesson check0 / 2 answered · 0 correct
Check 1
What normally happens if the applicant performs and the standby is only a backup?
Check 2
What does the bank mainly examine when a demand is made?
How an SBLC Works from Issue to Demand
See the normal standby lifecycle one step at a time.
Step 1 — Obligation agreed
The applicant and beneficiary have an underlying contract or obligation.
Step 2 — SBLC requested
The applicant asks its bank to issue the standby.
Step 3 — Standby issued and advised
The issuing bank sends the undertaking through the agreed banking route. MT760 is the SWIFT message used for issuance of a demand guarantee or standby letter of credit.
Step 4 — Normal performance
In a typical backup standby, the applicant performs and no demand is made.
Step 5 — Demand if needed
If the supported obligation is not met and the standby permits a draw, the beneficiary presents the required demand documents.
Step 6 — Bank examines the demand
The issuer examines the presented documents against the standby and applicable rules.
Step 7 — Honour or refusal
The bank honours a complying demand according to the undertaking, or handles a non-complying demand according to the applicable rules and law.
Remember thisThe bank examines a documentary demand. It does not decide the whole commercial dispute.
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