Stand By Letter of Credit


A standby Letter of Credit is a document issued by a bank. It serves as a guarantee to pay the beneficiary if something fails to happen. Standby letters of credit can be used for domestic transactions in your country as well as international trade. The letter provides security from the bank, which is assumed to be a disinterested third party. If the bank’s customer fails to complete a project on time, pay on time, or satisfy certain terms of an agreement the bank will pay the beneficiary.

A Standby Letter of Credit is usually given by banks, but some financial institutions also vouch for the integrity of a seller and purchaser, acting as an intermediary. The buy and sell agreement is made between the two parties that both must uphold their part. In this letter, the bank or the financial institution with which the client or the customer made a deal will ensure the drawers or dealers of the client that it will provide the money which the client has to give them. It sends this letter to them so that they can go to the own bank which has sent the letter and can collect their money by providing this letter and necessary documents.

Sample letter

The following is a sample of Standby Letter of Credit:


Bosnia Garments Inc,

New York.


Irrevocable Standby Letter of Credit # {93874321}


Caring Homes,

23 Maple Street,

Manor District, FL 32463,

James S. Smith,

4205 White Oak Drive,

Lee S Summit, MO 64063.

Account Party:

Barry Andrews,

New York

Dear Sir,

We, the First United Bank of USA at this moment open our irrevocable and unconditional standby credit for Mr. James S. Smith for Caring Homes with the total of not more than $100,000 to be paid by one or both requests at sight. The party has notified First United Bank that with this credit letter issued, the obligations presented for the agreed loan agreement is confirmed as entered by Caring Homes and the borrower as dated on June 8, 2010. The bank at this moment confirms the said loan agreement and its validity with this credit letter taken as surety and guarantee, which will be serviced with the assets of the borrower.

The issuance of this credit letter is in accord with the standard custom and practices related to documentary credits as per 1994 version as well as the international chamber of commerce series #503. We at this moment are informing you that we agree to the terms of the endorsers, drawers, bona fide holders that all the drafts can be drawn. The Letter of Credit will be duly honored upon presentation and delivery of above documents for negotiation at our bank on or before the expiration date. If you have any queries or doubts regarding how to withdraw you can come to us in the bank working times so that we can clarify the doubts you are having or mail us at so we can reply at the soonest. Thank you for your patience in this situation.

Yours truly,

Barry Andrews.



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