Most Common Real-World Uses in International Trade
Trade Scenario | Instrument Usually Required | Why It’s Used | Typical Face Value | Duration |
|---|---|---|---|---|
Commodity deals (oil, metals, grains, sugar) | SBLC MT-760 | Seller wants 100% payment protection before shipping | 100% of contract value or 100% + 10% | 1 year + 1 day (or revolving) |
Pre-export finance / advance payment | BG (Advance Payment Guarantee) | Buyer pays 10-50% upfront; wants money back if seller never ships | Equal to advance amount | Until shipment + grace period |
Construction / infrastructure projects abroad | Performance BG (usually 5-10% of contract) + Advance Payment BG | Protects owner against non-completion or misuse of mobilizations funds | 5-15% of total contract | Until project completion or handover |
Tender/Bid bond | Bid Bond BG (1-5%) | Ensures bidder will sign contract if awarded | 1-5% of tender value | Until contract award |
Large machinery / capital goods export | SBLC or Deferred Payment BG | Buyer pays over 1-5 years; seller wants bank guarantee instead of LC | 100% of deferred amount | Matches repayment schedule |
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