Bank Guarantee

• A stand-by letter of credit can help facilitate a transaction by providing comfort to the beneficiary.The stand-by letter acts as a guarantee from the bank that the beneficiary will be paid for his goods or services.
  
  

A Solid Agreement

• The stand-by letter obligates the bank to make payment, even if there are disputes between the customer and the beneficiary.
  
  

Collateral

• The customer applying for the stand-by letter of credit must have a credit line or collateral equal to the value of the letter. The assets are frozen by the bank until the transaction is completed.
  
  

Popular in America

• The stand-by letter of credit is used primarily in the United States and is often called a non-performing letter of credit, because it serves only as a backup should the buyer fail to pay as agreed.
  
  

Typical Uses

• Stand-by letters of credit are used to guarantee repayment of loans, to ensure fulfillment of a contract, and to secure payment for goods delivered by third parties.