What is the difference between BG and LC?:

What is a letter of credit(LC) ?. 

A letter of credit is written commitment document issued by a bank or other financial institutions(on behalf of buyer of goods) to assure payment to seller on the basis of documentary proof on fulfillment of dispatch of goods by seller as per terms and conditions mentioned in LC. Under an LC, the seller gets guarantee on payment of his sale of goods from the buyer’s bank.

What is a bank guarantee(BG) ?

A bank guarantee is issued by bank on behalf of its customer, assuring the beneficiary to effect payment on default of obligation ( like non fulfillment of some activity like construction of some road or bridge or building etc). This is used by contractors in lieu of earnest money to be deposited.