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Stand By Letter of Credit


A standby letter of credit is a guarantee of payment issued by a bank or a financial institution on behalf of client where the bank or a financial institution promises to pay a "beneficiary" in case of default by the applicant.

Historically, Standby letters of credit were developed because the US regulator legally limited bank or a financial institution US bank's authority to issue guarantees.

A stand-by letter of credit is a very flexible financial tool, making it a suitable instrument for securing a vast range of payment scenarios.

It is commonly used for international trading as it provides assurance to the seller / exporter that the payment will come through. However, a stand-by letter of credit involves quite a few complexities and therefore, one must consult with an expert if not well acquainted with stand-by letters of credit.


Types of Stand-by Letters of Credit

  • Performance standby letter of credit
  • Advance-payment standby letter of credit
  • Bid-bond or tender-bond standby letter of credit
  • Counter standby letter of credit
  • Financial standby letter of credit
  • Insurance standby letter of credit
  • Commercial standby letter of credit
  • Direct-pay standby letter of credit