Standby letter of credit - Financial definition
Concise definition of the term standby letter of credit
A standby letter of credit is a guarantee issued by a bank to ensure payment if the applicant fails to fulfill a contractual obligation.
Comprehensive definition of the term standby letter of credit
Standby letters of credit serve as backup payment mechanisms, often used in international trade or real estate transactions. They provide assurance to the beneficiary that they will receive payment if the applicant defaults. These instruments are commonly employed when parties lack trust or when specific performance risks exist, offering a financial safety net and facilitating smoother transactions.