standby letter of credit (L/C)

  

Definition

A letter of credit that is used mainly in the US where banks are legally barred from issuing certain types of guaranties. It serves as a parallel (collateral) payment source in case the primary source fails to meet its obligations in part or in full and is a substitute for a performance bond or payment guaranty. Also called standby credit.

Use this term in a sentence

  • The standby letter of credit was sufficient for our business partner to be willing to proceed in undertaking the project.

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  • You may want to ask for a standby letter of credit so that you have proof of the deal that has taken place.

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  • My credit score was not enough to finance my new house, so I received a standby letter of credit from my bank which was co-insured by my grandma.

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