Standby Letters of Credit

A flexible tool for a variety of situations

When you encounter a business transaction that requires assurance that your payment will be made — but a trade or documentary letter of credit does not fit — a standby letter of credit may be what you need. A standby letter of credit does not have to be related to the purchase of goods or services. It is based on a contractual agreement or other obligation and is drawn upon by the beneficiary only when the applicant fails to meet the underlying obligation.

Advantages of Standby Letters of Credit

  • Certify creditworthiness in domestic as well as foreign transactions
  • Eliminate the need for cash deposits or more complicated guarantees, such as bid or performance bonds
  • Establish creditworthiness of U.S.-based parent companies to subsidiaries overseas
  • Reduce banking costs, since standby letters of credit are less expensive than bonding and other credit facilities
  • Ensure that international transactions are properly structured