A Standby letter of

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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.

Tips for obtaining a letter of credit

-          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