Friday, April 29, 2011

Stand By LC

A stand by LC is not an ordinary letter of credit but it is a sort of standby or back up credit.These credit are generally used as a substitute for performance guarantee or for securing loans. A drawing under a stand by credit is made only when the beneficiary requires claiming the sum for the non performance of the job or as stipulated in the credit or contract between the applicant and beneficiary. The documents generally called for under such credits are simple statement of claim or proof of delivery of goods or certificates of non performance. This type of letter of credit is opended mostly by banks in countries where by law they are precluded from issuing guarantees and is such cases this type of credit issued as substitute for performance or other financial guarantees. Even though standby credit is mere substitute for guarantee, it has been developed as an all purpose financial support instrument. No transport document is demanded under this credit.

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