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.

BREAKING DOWN '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. Credit Limit

    The amount of credit that a financial institution extends to ...
  2. Credit Event

    Any sudden and tangible (negative) change in a borrower's credit ...
  3. Open-End Credit

    A pre-approved loan between a financial institution and borrower ...
  4. Credit Rating

    An assessment of the creditworthiness of a borrower in general ...
  5. Line Of Credit - LOC

    An arrangement between a financial institution, usually a bank, ...
  6. Credit Analyst

    A financial professional who has expertise in evaluating the ...
Related Articles
  1. Personal Finance

    The Basics of Lines of Credit

    Lines of credit are potentially useful hybrids of credit cards and normal loans. Learn how a line of credit can help (and hurt) your finances, and how to find the best one to suit your needs. ...
  2. Small Business

    Small Business Loan Vs Line of Credit: How They Differ

    Understand the differences between a small business loan and a line of credit, and learn some of the most appropriate uses for each form of financing.
  3. Investing

    Understanding Credit Risk

    Credit risk arises whenever a borrower is expecting to use future cash flows to pay a current debt.
  4. Retirement

    The Retirement Mistake You Don’t Want to Make

    If you have a choice between a lump sum or an annuity payment at retirement, think carefully. The wrong choice could cost you.
  5. Financial Advisor

    The Best Way To Borrow

    There are many avenues from which to drum up funding. Find out the pros and cons of each.
  6. Tech

    Good Credit? Try This Credit Card Alternative

    Personal loans are a credit card alternative to try if you've got great credit and you want to lock in a lower interest rate on what you borrow. [underlined word is credit card alternative]
  7. Personal Finance

    What Do Credit Score Ranges Mean?

    Take a closer look at what credit scores in each range mean for your financial future.
  8. Personal Finance

    Personal Loans: Consider These Alternative Lenders

    Looking for an alternative source of financing for a personal loan? Take a look at these companies.
  9. Investing

    Understanding Credit

    Credit has three common meanings in the financial world.
  10. Personal Finance

    Home Improvement Loans: What Are Your Best Options?

    If you plan on taking out a home improvement loan, you should know what your options are and which ones might be best for your situation.
RELATED FAQS
  1. How do standby letters of credit help facilitate international trade?

    Find out how standby letters of credit can help facilitate international trade by providing an incentive for banks to vouch ... Read Answer >>
  2. How would a standby letter of credit be used during an export transaction?

    Learn what a standby letter of credit is and how it works, as well as how a standby letter of credit is typically used for ... Read Answer >>
  3. What's the difference between a secured line of credit and an unsecured line of credit?

    Discover the differences between a secured line of credit and an unsecured line of credit, and why lenders treat the two ... Read Answer >>
  4. What is the difference between the Five Cs of Credit and credit rating?

    Learn the difference between the five C's of credit and credit rating and how they are used together by banks and finance ... Read Answer >>
  5. How is interest charged on most lines of credit?

    Learn how most financial institutions calculate interest on lines of credit by using the average daily balance method and ... Read Answer >>
Trading Center