Standby Letter of Credit - SLOC

Loading the player...

What is a 'Standby Letter of Credit - SLOC'

A standby letter of credit (SLOC) is a guarantee of payment issued by a bank on behalf of a client that is used as "payment of last resort" should the client fail to fulfill a contractual commitment with a third party. Standby letters of credit are created as a sign of good faith in business transactions, and are proof of a buyer's credit quality and repayment abilities. The bank issuing the SLOC will perform brief underwriting duties to ensure the credit quality of the party seeking the letter of credit, then send notification to the bank of the party requesting the letter of credit (typically a seller or creditor).

Also known as a "non-performing letter of credit".

BREAKING DOWN 'Standby Letter of Credit - SLOC'

A standby letter of credit will typically be in force for about one year, allowing for enough time for payment to be made through standard contractual guidelines.

Standby letters of credit are often used in international trade transactions, such as the purchase of goods from another country. The seller will ask for a standby letter of credit, which can be cashed on demand if the buyer fails to make payment by the date specified in the contract. The cost to obtain a standby letter of credit is typically 1-8% of the face amount annually, but the letter can be canceled as soon as the terms of the contract have been met by the purchaser or borrower.

RELATED TERMS
  1. Confirmed Letter Of Credit

    A second guarantee, in addition to a letter of credit, that commits ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a ...
  3. Sight Letter Of Credit

    A letter of credit that is payable once it is presented along ...
  4. Transferable Letter Of Credit

    A letter of credit that permits the beneficiary of the letter ...
  5. Straight Credit

    A type of letter of credit. A straight credit can only be paid ...
  6. Red Clause Letter Of Credit

    A specific type of letter of credit in which a buyer extends ...
Related Articles
  1. Investing

    Letter of Credit

    A letter of credit is a document from a bank promising to pay the holder a certain amount if the holder fulfills certain obligations. Sellers in commercial transactions often require buyers to ...
  2. Professionals

    7 Cover Letter Blunders

    It's not just your resume that matters. Find out which cover letter mistakes can keep you from landing a job.
  3. Personal Finance

    Financial Analyst Cover Letters That Get You Hired

    Crafting a strong cover letter for a job can increase your chances of standing out from the crowd and landing an interview. Some techniques that help.
  4. Retirement

    Letter Of Instruction - Don't Leave Life Without It

    This simple document can take the guesswork and headache out of settling your estate.
  5. Personal Finance

    The Complete Guide To Job Searching: Cover Letters

    You have found a job that sounds ideal. You might have the exact skills that the employer is looking for, but unless you can broadcast your abilities, the employer may never know you are the ...
  6. Credit & Loans

    7. Get Confirmation in Writing

    Learn when it's a good idea to close a credit card, and how to make sure you do it right.
  7. Professionals

    7 Cover Letter Blunders

    It's not just your resume that matters. Find out which cover letter mistakes can keep you from landing a job.
  8. Term

    What's Trade Finance?

    Essentially, trade finance makes it possible and easy for exporters and importers to trade, and its expansion has accommodated a massive international trade growth.
  9. Credit & Loans

    6 Ways To Build Credit Without A Credit Card

    It's definitely possible – if a bit more complicated – to build a credit history without traditional credit cards. Just follow these steps.
  10. Credit & Loans

    How To Increase Your Appeal To Prospective Lenders

    Making a business eligible for loans/credit cards at the best possible rates requires crafting an excellent credit profile through the smart use of credit.
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 are the different types of letters of credit?

    Learn more about the different types of letters of credit that are used to facilitate exchanges between parties that might ... Read Answer >>
  4. When do I need a letter of credit?

    Learn more about the function of a letter of credit for both the buyer and the seller, and get some examples showing when ... Read Answer >>
  5. When is it necessary to get a letter of credit?

    Capitalize on assets and negate risks by using a letter of credit. Letters of credit are often requested for buying, selling ... Read Answer >>
  6. What is a standby letter of credit (SLOC)?

    Understand the basic features of a standby letter of credit, how and why it is used and why it is important in facilitating ... Read Answer >>
Hot Definitions
  1. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  3. 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 ...
  4. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  5. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  6. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
Trading Center