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. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a ...
  2. Standby Line of Credit

    A sum of money, not to exceed a predetermined amount, that can ...
  3. Bank Confirmation Letter - BCL

    A letter confirming that a line of credit has been secured from ...
  4. Standby Underwriting (Standby)

    A type of agreement to sell shares in an initial public offering ...
  5. Shareholder Letter

    A shareholder letter is a letter written by a firm's top executives ...
  6. Letter Security

    A security that is not registered with the SEC, and therefore ...
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. Investing

    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 ...
  3. Personal Finance

    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.
  4. 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. ...
  5. Personal Finance

    Build Your Credit Score

    Here are four good ways to build your credit score when you're starting from scratch. Do it right and you'll end up with excellent credit.
  6. Investing

    Millennials: Prevent a Bad Credit Score

    Here are five ways to help prevent getting a bad credit score that could affect future loan, credit card or mortgage approvals.
  7. Personal Finance

    Business Vs. Consumer Credit Reports: What's the Difference?

    Find out the difference between a business credit report and a personal credit report, and why it should matter for business owners.
  8. Personal Finance

    9 Ways To Improve Your Credit Score Today

    When it comes to finances, there are a number of goals that you might have established, such as saving money, paying down debt or new investments.
  9. Investing

    How To Establish A Credit History

    Can't get a credit card without a credit history, and can't get a history without a card? Break the Catch-22.
  10. Personal Finance

    Use Your Credit Card To Boost Your Credit Score

    Misusing credit cards can blow your credit – but using them well can boost your score. How to grow a history, fix bad credit, make good credit even better.
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. 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 >>
  3. 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 >>
  4. What is a bank's legal liability when issuing a letter of credit?

    Learn the responsibility of banks that issue letters of credit Letters of credits ensure payment on transactions between ... Read Answer >>
  5. When are you legally required to get a letter of credit?

    Learn how exporters or importers who deal in international trade use letters of credit to ensure that transactions are safe, ... Read Answer >>
  6. What's the difference between a letter of credit and a bank guarantee?

    Learn how letters of credit and bank guarantees differ, how they are used by banks and companies, and how buyers apply to ... Read Answer >>
Hot Definitions
  1. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  2. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  3. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  4. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  5. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
  6. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is ...
Trading Center