A (SBLC) Standby Letter of Credit is a banking instrument, and it is used mainly to underpin Trade Finance transactions, its expiry date varies from one trade to another, and is a payment of last resort. Two companies will enter into a contract, the buyer, and the seller. Under instructions from the buyer, their bank, (The Issuing Bank) will transfer a Standby Letter of Credit to the sellers’ bank, (The Receiving Bank), and if the buyer does not honour their financial commitment to the seller, under the terms of the Standby Letter of Credit, the Issuing Bank, to ensure the seller receives payment, will claim against the Standby Letter of Credit.

The word leased in a Leased Standby Letter of Credit, is not an official banking term, and is a technical inaccuracy, the proper description being Collateral Transfer and it is thought to have originated from a commercial leasing contract that has similar attributes to a Leased Stand-by Letter of Credit, (See What Is a Leased Stand-by Letter of Credit), where the term was initially utilised, before being applied incorrectly by the world at large, to many other instruments including the Standby Letter of Credit.

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