Standby Letter of Credit

A Standby letter of credit, otherwise known as a non-performing letter of credit, is a letter issued by a financial institution to an individual or a business. By obtaining one of these letters, the individual has an extra asset that can be collected against in the case of a failed business transaction. For example, if the individual receives a shipment of products from an overseas exporter, but does not make a payment, the exporter can make a claim on the standby letter of credit and collect their losses. This is just another way for businesses with small capital reserves to leverage their accounts and take part in large financial transactions.


Starting to Write


Make sure you understand all the terms and obligations of your standby letter of credit.


Shop around at a few different banks to get the best interest rate on your standby letter of credit.


Make sure the cancellation date is adequate for the transaction you are participating in.


Make sure all the information you provide when obtaining a letter of credit are made in good faith – do not inflate or deflate important financial figures.

Sample Letters

Standby Letter of Credit Bank of America Sample

RE: Standby Letter of Credit

Issuing Bank: Bank of America

Applicant: The Major Corporation

Beneficiary: High End Clothes LA


Amount: $6,000,000

Expires: May 03, 2013


To All Concerned Parties,

As requested by applicant The Major Corporation, the Bank of America hereby grants a Standby Letter of Credit in the favor of High End Clothes LA, not exceeding $6,000,000.


This Letter of Credit can be drawn from the BOA branch located at 7337 Velvet Gate, LA, CA, 93379-8218, as long as you provide:


1) Signed Drafts indicating that The Major Corporation failed to meet its obligations under the contract.

2) Signed Beneficiary Statement

3) Copy of Signed Applicant Letter

3) Copy of Overnight Courier Receipt


Please find enclosed a copy of the original standby letter of credit form, and a breakdown of the associated fees and rates.


Very Truly Yours,

Bank of America LA