Document background
The Performance Letter of Credit is a critical financial instrument in U.S. business transactions where one party seeks assurance of another party's performance obligations. This document is particularly vital in high-value contracts or projects where the consequences of non-performance could be significant. Under U.S. jurisdiction, it provides a more secure alternative to performance bonds, offering beneficiaries a direct claim on a bank rather than an insurance company. The Performance Letter of Credit typically includes specific triggers for payment, detailed documentation requirements, and clear performance metrics. It's commonly used in construction projects, large-scale service contracts, and international trade transactions, providing security to project owners while allowing contractors to avoid tying up large amounts of working capital. The document must comply with both federal and state banking regulations, as well as international banking practices when used in cross-border transactions.
