Standby Letters of Credit originated in the United States primarily in the form of a payment undertaking but intended to be used only as a fall-back (“standby") in the event of default by the principal under the underlying contract.

From a legal perspective, the Standby Letter of Credit is simply another term for the Demand Guarantee; but since banks in the United States are not normally permitted to issue guarantees, the term “Standby Letter of Credit” was adopted in order to avoid the language of guarantee.  For the same reason, Standby Letters of Credit have been brought within the ambit of the Uniform Customs and Practice for Documentary Credits (UCP). Standby Letters of Credit are issued in accordance with International Standby Practices (ISP) 98, Publication No. 590 of the International Chamber of Commerce.

 

Demand Guarantees

Documentary Letter of Credit
 

Differences between DLCs and SBLCs

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