Standby Letter of Credit

Definition:

Also known as a “non-performing letter of credit.” A Letter of Credit used as a “payment of last resort” should the borrower fail to fulfill its contractual duties. The bank issuing the Standby Letter of Credit makes an irrevocable obligation to make payment to the third-party beneficiary on account of any indebtedness undertaken by the borrower or to make payment on account of any Default by the borrower in the performance of a non-financial or commercial obligation.

See also Commercial Letter of Credit.

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