The standard use for a Standby Letter of Credit is for Trade Finance transactions, where there are differing expiry dates and it is utilised as a payment of last resort. The buyer, (the Provider) and the seller, (the Beneficiary), enter into a contract whereby the buyer instructs their bank, (The Issuing Bank)to transfer a Standby Letter of Credit to the sellers’ bank, (The Receiving Bank), and if the buyer fails to pay the seller, the Receiving Bank can claim against the Standby Letter of Credit on behalf of the seller.
A Leased Standby Letter of Credit is not a correct description, as the word leased has been used incorrectly for years with a Leased Bank Guarantee, and is thought to have originated from a commercial leasing contract where the verbiage is similar to that of a Leased Bank Guarantee. The correct technical reference to a Leased Standby Letter of Credit is Collateral Transfer, but the word Leased will continue to be used in conjunction with banking instruments as the word is now entrenched in financial terminology.
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