Standby Letters of Credit
If your business bids on contracts that require contract security or if your suppliers require security of payment, then the BDIC’s Standby Letter of Credit Program may be a solution for you.
A Standby Letter of Credit (SLC)* is an irrevocable assurance that the BDIC will make payments in the event that you are unable to meet your obligations to third parties. SLCs carry the same credit risk, recourse and collateral security requirements as loans.
The maximum term of an SLC is 1 year.
SLCs are often issued for:
- Companies or governments that require contractors to provide
- security with their bids, or
- contract security
- Suppliers who require security to ship prior to receiving payment for goods.
In the event of a default, the third party beneficiary can demand payment from the BDIC, in which case the BDIC will pay and the client will be required to reimburse the BDIC.
A Standby Letter of Credit Facility (SLC Facility)* allows you to have the BDIC issue SLCs. A letter of offer for an SLC Facility details security requirements and terms and conditions on which the BDIC will issue SLCs. In particular SLC Facilities have:
- a term (typically 5 years),
- a commission rate (which varies from 2% to 4% per SLC issued depending on the credit risk involved),
- an aggregate dollar limit that can be used for issuing SLCs (the limit will become available again when SLCs expire or are returned)
An SLC Facility must be established prior to any SLCs being issued.
* An SLC and an SLC Facility are not the same and cannot be used interchangeably.
SLC Facility is a credit facility which allows the issuance of SLCs.
SLC is a document which can be issued only after an SLC Facility is set up.
For more information on Standby Letters of Credit, please contact your regional Industry, Tourism and Investment office or contact us at 867-767-9075.