A Michigan Letter of Credit is a specialized type of surety bond issued by a bank or other financial institution to guarantee payment of a certain amount of money in the event of a default or breach of contract. This type of financial instrument is commonly used in construction and real estate transactions, as well as other business deals in Michigan. There are several types of Michigan Letter of Credit, including Commercial Letters of Credit, Standby Letters of Credit, and Bid Bonds. Commercial Letters of Credit are used to guarantee payment of a specific amount of money in the event of a default or breach of contract. The issuer of the letter of credit is typically a financial institution such as a bank or credit union. The issuer will issue the letter of credit to the beneficiary, usually the contractor, and the beneficiary will then be able to draw on it to receive the funds in case of a default or breach of contract. Standby Letters of Credit are similar to Commercial Letters of Credit, but are issued by the beneficiary or the applicant, and are not secured by a third party. These letters of credit are used to guarantee payment of a specific amount of money in the event of a default or breach of contract. Bid Bonds are issued by the applicant, and are often used in construction and real estate transactions. The applicant will issue the bond to the beneficiary, usually the contractor, to guarantee payment of any outstanding bids that the contractor is obligated to pay in the event of a default or breach of contract. In all cases, a Michigan Letter of Credit can provide the beneficiary with the assurance that they will receive payment in the event of a default or breach of contract.