Standby Line of Credit

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.

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RELATED FAQS
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    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 are some good alternatives to taking out a line of credit?

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  4. What is the difference between a loan and a line of credit?

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