Reply To: Can a bank guarantee be issued for commodities and other services and goods?

[Adharsh]

They can, yes.

But the contract wording of the financial instruments – whether it’s a bank guarantee or a letter of credit (LC) – is far more important than the instrument itself.
In general, standby LCs are the cheaper option because they cover less contractually and have a more expensive process that includes issuance protocols and document examination fees. LCs are the more popular option among traders because of this.
The main difference between letters of credit and bank guarantees is how they are used in real-world trade.

Letters of credit are usually used by merchants who regularly import and export goods to guarantee delivery and payment, while bank guarantees are used by contractors bidding on infrastructure projects to prove they have enough money.