Standby Line of Credit

AAA

DEFINITION of 'Standby Line of Credit'

A sum of money, not to exceed a predetermined amount, that can be borrowed in part or in full from a credit granting institution if the borrower needs it. In contrast, an outright loan would be a lump sum of money that the borrower intended to use for certain.

INVESTOPEDIA EXPLAINS 'Standby Line of Credit'

A business might establish a standby line of credit with a financial institution in situations where the business needed to guarantee its ability to pay a certain amount of money to a client if the business fails to fully perform on a contract. In this situation, the standby line of credit would act as a performance bond. The standby line of credit might be used as a backup source of funding in case the primary source fails.

RELATED TERMS
  1. Commercial Credit

    A pre-approved amount of money issued by a bank to a company ...
  2. Consumer Credit

    A debt that someone incurs for the purpose of purchasing a good ...
  3. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a ...
  4. Line Of Credit - LOC

    An arrangement between a financial institution, usually a bank, ...
  5. Open-End Credit

    A pre-approved loan between a financial institution and borrower ...
  6. Revocable Trust

    A trust whereby provisions can be altered or canceled dependent ...
Related Articles
  1. How To Find A Credit Counselor
    Insurance

    How To Find A Credit Counselor

  2. What Is A Corporate Credit Rating?
    Investing Basics

    What Is A Corporate Credit Rating?

  3. How To Read Loan And Credit Card Agreements
    Credit & Loans

    How To Read Loan And Credit Card Agreements

  4. The Importance Of Your Credit Rating
    Credit & Loans

    The Importance Of Your Credit Rating

comments powered by Disqus
Hot Definitions
  1. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  2. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  3. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  4. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  5. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  6. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
Trading Center