Stand-by Letter of Credit

This works in a very similar way to a bank guarantee but in a format that looks like a documentary credit. The Stand-by L/C sits in the background and is only used if there is a non-performance of the underlying contract. They may provide for settlement to be made to the issuing bank upon receipt of a simple demand on the beneficiary, or alternatively a fuller statement and/or supporting documentation may also be required. Drawings are made by a simple declaration of non-performance.