sign-in<\/a> to gain exclusive access to our full library of videos, podcasts, expert guides, and comprehensive research data\u2014all at no cost.","protected":false},"excerpt":{"rendered":"Standby Letters of Credit Explained In relation to LCs, typically we see a buyer and seller open Letters of Credit and when the terms within such LC are fulfilled, it\u2026 read more →<\/a><\/p>\n","protected":false},"author":57,"featured_media":9006,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"content-type":"","ep_exclude_from_search":false,"footnotes":""},"categories":[167,106,168,2129,41,264,32],"tags":[113,50,905,907,906,908,909,904],"class_list":["post-9002","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-articles","category-bonds-guarantees-and-letters-of-credit","category-faqs","category-letters-of-credit","category-sme-finance","category-supply-chain-finance","category-trade-finance","tag-international-trade","tag-letters-of-credit","tag-sblc","tag-sblcs","tag-sloc","tag-slocs","tag-specification-of-goods","tag-standby-letters-of-credit"],"acf":{"main_summary":"","header":"Standard","layout":"Custom","banner_image_above_title":"Yes","is_expert_picks":false,"organisations":null,"users":"","type_of_sidebar":"Standard","sidebar_single":null,"turn_on_featured_posts":"No","additional_on__off":"Off","featured_posts_order":"ASC","title_add":"More Posts","number_of_posts_add":"","category_add":null,"order_by_add":"ASC","title_link_add":"","add_layout_single":null},"yoast_head":"\nWhat is a Standby Letter of Credit (SLOC)? | Trade Finance Global Blog<\/title>\n<meta name=\"description\" content=\"A Standby Letter of Credit (SLOC) is seen as a financial guarantee and is used regularly in cross border trades. An SLOC acts as a "payment of last resort" if the client fails to fulfil a contractual commitment.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/\" \/>\n<meta property=\"og:locale\" content=\"en_GB\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What is a Standby Letter of Credit (SLOC)?\" \/>\n<meta property=\"og:description\" content=\"A Standby Letter of Credit (SLOC) is seen as a financial guarantee and is used regularly in cross border trades. An SLOC acts as a "payment of last resort" if the client fails to fulfil a contractual commitment.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/\" \/>\n<meta property=\"og:site_name\" content=\"Trade Finance Global\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/tradefinanceglobal\" \/>\n<meta property=\"article:published_time\" content=\"2016-11-13T16:32:42+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2025-03-02T13:57:53+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.tradefinanceglobal.com\/wp-content\/uploads\/2016\/11\/Standby-Letter-of-Credit.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1300\" \/>\n\t<meta property=\"og:image:height\" content=\"861\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Deepesh Patel\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@deepeshapatel\" \/>\n<meta name=\"twitter:site\" content=\"@tradefinglobal\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Deepesh Patel\" \/>\n\t<meta name=\"twitter:label2\" content=\"Estimated reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"7 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/\"},\"author\":{\"name\":\"Deepesh Patel\",\"@id\":\"https:\/\/www.tradefinanceglobal.com\/#\/schema\/person\/4ff023bd3c0ed46451fca142b65cfde0\"},\"headline\":\"What is a Standby Letter of Credit (SLOC)?\",\"datePublished\":\"2016-11-13T16:32:42+00:00\",\"dateModified\":\"2025-03-02T13:57:53+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/\"},\"wordCount\":1534,\"publisher\":{\"@id\":\"https:\/\/www.tradefinanceglobal.com\/#organization\"},\"image\":{\"@id\":\"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.tradefinanceglobal.com\/wp-content\/uploads\/2016\/11\/Standby-Letter-of-Credit.jpg\",\"keywords\":[\"international trade\",\"letters of credit\",\"SBLC\",\"SBLCs\",\"SLOC\",\"SLOCs\",\"specification of goods\",\"Standby Letters of Credit\"],\"articleSection\":[\"Articles\",\"Bonds, Guarantees and Letters of Credit\",\"FAQs\",\"Letters of Credit\",\"SME Finance\",\"Supply Chain Finance\",\"Trade Finance\"],\"inLanguage\":\"en-GB\",\"copyrightYear\":\"2016\",\"copyrightHolder\":{\"@id\":\"https:\/\/www.tradefinanceglobal.com\/#organization\"}},{\"@type\":[\"WebPage\",\"FAQPage\"],\"@id\":\"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/\",\"url\":\"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/\",\"name\":\"What is a Standby Letter of Credit (SLOC)? | Trade Finance Global Blog\",\"isPartOf\":{\"@id\":\"https:\/\/www.tradefinanceglobal.com\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.tradefinanceglobal.com\/wp-content\/uploads\/2016\/11\/Standby-Letter-of-Credit.jpg\",\"datePublished\":\"2016-11-13T16:32:42+00:00\",\"dateModified\":\"2025-03-02T13:57:53+00:00\",\"description\":\"A Standby Letter of Credit (SLOC) is seen as a financial guarantee and is used regularly in cross border trades. 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Deepesh regularly chairs and speaks at international industry events held by the IFC, EBRD, IMN, WTO, Financial Times and Economist Impact, as well as industry associations including ICC, FCI, ITFA, ICISA and BAFT.\",\"sameAs\":[\"https:\/\/www.tradefinanceglobal.com\",\"https:\/\/www.linkedin.com\/in\/deepeshpatel\/\",\"https:\/\/x.com\/deepeshapatel\"],\"honorificPrefix\":\"Mr\",\"gender\":\"male\",\"knowsAbout\":[\"Tradetech\",\"Trade Finance\"],\"knowsLanguage\":[\"English\",\"Gujarati\"],\"jobTitle\":\"Editor-in-Chief\",\"worksFor\":\"Trade Finance Global\",\"url\":\"https:\/\/www.tradefinanceglobal.com\/posts\/author\/deepesh-patel\/\"},{\"@type\":\"Question\",\"@id\":\"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418537128\",\"position\":1,\"url\":\"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418537128\",\"name\":\"What is a Standby Letters of Credit?\",\"answerCount\":1,\"acceptedAnswer\":{\"@type\":\"Answer\",\"text\":\"<br\/>A Standby Letter of Credit (SLOC) is seen as a financial guarantee and is used regularly in cross border trades. It is important to explain first what a <a href=\\\"\/letters-of-credit\/\\\">Letter of Credit (LC)<\/a> is and then move on to the explanation of an SLOC. The reasons these mechanisms are in place is due to allowing the flows of international trade to work in a sustainable and secure way.\",\"inLanguage\":\"en-GB\"},\"inLanguage\":\"en-GB\"},{\"@type\":\"Question\",\"@id\":\"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418568996\",\"position\":2,\"url\":\"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418568996\",\"name\":\"When would a Standby Letter of Credit (SLOC) be used?\",\"answerCount\":1,\"acceptedAnswer\":{\"@type\":\"Answer\",\"text\":\"<br\/>The reason to have an SLOC is as proof of the good faith element in a business transaction, which displays the clients\u2019 ability to re-pay and their credit quality. The financier who issues an SBLC usually does it on the basis that it is a guarantee and will not be drawn upon. <br\/><br\/>A typical example is seen within a building contract \u2013 where one party agrees to provide a bond or SLOC for 10% of the amount of the contract. This allows the other party to feel comfortable that if there is a condition or specific trigger that is not fulfilled, then they can draw upon this mechanism embedded within the contract.\",\"inLanguage\":\"en-GB\"},\"inLanguage\":\"en-GB\"},{\"@type\":\"Question\",\"@id\":\"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418606511\",\"position\":3,\"url\":\"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418606511\",\"name\":\"Why would an SLOC be used within international trade?\",\"answerCount\":1,\"acceptedAnswer\":{\"@type\":\"Answer\",\"text\":\"<br\/>An SLOC is used within international trade or high value agreements where the outcome may be a dispute and the potential of litigation and further action may be difficult to enforce. This may be due to jurisdictional or related enforcement difficulties. <br\/><br\/>An SLOC will in effect guarantee that payment to the ultimate beneficiary or intended recipient of funds will be made. On a commodities transaction where there is the agreement to pay for the underlying goods in 60 days and this is not made then with an SLOC; having the backdrop of a financial guarantee allows it to be called upon if the agreed conditions are not fulfilled. This is usually done on presentation of the SLOC to the financial institution that has provided it.\",\"inLanguage\":\"en-GB\"},\"inLanguage\":\"en-GB\"},{\"@type\":\"Question\",\"@id\":\"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418645178\",\"position\":4,\"url\":\"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418645178\",\"name\":\"How do I get an SLOC?\",\"answerCount\":1,\"acceptedAnswer\":{\"@type\":\"Answer\",\"text\":\"<br\/>To get an SLOC it will be the same process of getting a standard loan and there will need to be proof of the creditworthiness to the financial institution. For a creditworthy client, the shortest time scales quoted are usually a week to two weeks. It is thus seen as much quicker than the processing times on a standard loan.\",\"inLanguage\":\"en-GB\"},\"inLanguage\":\"en-GB\"},{\"@type\":\"Question\",\"@id\":\"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418673059\",\"position\":5,\"url\":\"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418673059\",\"name\":\"Are there any other types of SLOCs or guarantees?\",\"answerCount\":1,\"acceptedAnswer\":{\"@type\":\"Answer\",\"text\":\"<br\/>1. <a href=\\\"https:\/\/www.tradefinanceglobal.com\/risk-insurance\/guarantees\/bonds-and-guarantees\/\\\">Bid<\/a> Guarantees (referred to as bid bonds)<br\/>2. Retention Guarantees<br\/>3. Performance Guarantees (referred to as <a href=\\\"https:\/\/www.tradefinanceglobal.com\/risk-insurance\/bonds\/\\\">performance bonds<\/a>)<br\/>4. Advance Payment Guarantees\",\"inLanguage\":\"en-GB\"},\"inLanguage\":\"en-GB\"},{\"@type\":\"Question\",\"@id\":\"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418687030\",\"position\":6,\"url\":\"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418687030\",\"name\":\"What are the advantages of Standby Letters of Credit?\",\"answerCount\":1,\"acceptedAnswer\":{\"@type\":\"Answer\",\"text\":\"a. Cash flow is enhanced and no other security is needed to be put up<br\/>b. May allow diversification in cash cycle with prepayment not needed<br\/>c. The use of bid bonds allows lucrative contracts to be won by providing security\",\"inLanguage\":\"en-GB\"},\"inLanguage\":\"en-GB\"},{\"@type\":\"Question\",\"@id\":\"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418777027\",\"position\":7,\"url\":\"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418777027\",\"name\":\"Where do SLOCs come from?\",\"answerCount\":1,\"acceptedAnswer\":{\"@type\":\"Answer\",\"text\":\"<br\/>SLOCs come from the banking legislation of the United States, which prevents US credit institutions from taking on the obligations in relation to guarantees of third parties. This was the reason for the creation of SLOC, which are based on the uniform customs and practice for documentary credits.\u00a0<br\/><br\/>In 1998 the International Chamber of Commerce (ICC) added ISP98 (International Standby Practices 98) to act as the guidelines underpinning these financial products. However, many still use the ICC\u2019s older guide, <a href=\\\"\/letters-of-credit\/ucp-600\/\\\">Uniform Customs and Practices for Documentary Credits<\/a>, 2007 revision, ICC Publication 600.\",\"inLanguage\":\"en-GB\"},\"inLanguage\":\"en-GB\"},{\"@type\":\"Question\",\"@id\":\"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418819052\",\"position\":8,\"url\":\"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418819052\",\"name\":\"Lastly \u2013 What parties are there?\",\"answerCount\":1,\"acceptedAnswer\":{\"@type\":\"Answer\",\"text\":\"<br\/>- An applicant is the \u2018borrower\u2019 who requests the guarantee. In order to do, he provides collateral to the financial institution to prove credit worthiness. There will also be an annual fee; as outlined above<br\/>- The Issuing Bank provides the guarantee by way of an SLOC<br\/>- The beneficiary is the party who the guarantee is in favour of<br\/>- The confirming bank is the bank that confirms to pay the beneficiary as an alternative to the issuing bank making payment. The confirming bank will collect the amount that is owed from the Issuing Bank and the beneficiary will pay the confirming bank to do this<br\/>- The advising bank acts as a representative of the beneficiary and may accept an LC on behalf of the beneficiary; and collect on it. In some circumstances, the advising bank may be the confirming bank\",\"inLanguage\":\"en-GB\"},\"inLanguage\":\"en-GB\"},{\"@type\":\"Question\",\"@id\":\"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418846511\",\"position\":9,\"url\":\"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418846511\",\"name\":\"Can you assign the funds flowing from an SLOC?\",\"answerCount\":1,\"acceptedAnswer\":{\"@type\":\"Answer\",\"text\":\"We usually talk about the \u2018proceeds\u2019 of the SLOC and the beneficiary is able to do this. However, only the original beneficiary may exercise the drawer rights under the instrument and demand payment unless something different is agreed. <br\/><br\/>Only when the beneficiary has demanded payment, will the assignee then receive the proceeds (after an assignment has taken place). The Issuing Bank will need to be provided with notice or the issuing bank would pay funds to the original beneficiary and not the new assignee. Conversely, the only way an SLOC can be transferred is with consent of the written agreement of both the beneficiary and the issuing bank.\",\"inLanguage\":\"en-GB\"},\"inLanguage\":\"en-GB\"}]}<\/script>\n<!-- \/ Yoast SEO Premium plugin. -->","yoast_head_json":{"title":"What is a Standby Letter of Credit (SLOC)? | Trade Finance Global Blog","description":"A Standby Letter of Credit (SLOC) is seen as a financial guarantee and is used regularly in cross border trades. An SLOC acts as a \"payment of last resort\" if the client fails to fulfil a contractual commitment.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/","og_locale":"en_GB","og_type":"article","og_title":"What is a Standby Letter of Credit (SLOC)?","og_description":"A Standby Letter of Credit (SLOC) is seen as a financial guarantee and is used regularly in cross border trades. 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An SLOC acts as a \"payment of last resort\" if the client fails to fulfil a contractual commitment.","breadcrumb":{"@id":"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#breadcrumb"},"mainEntity":[{"@id":"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418537128"},{"@id":"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418568996"},{"@id":"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418606511"},{"@id":"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418645178"},{"@id":"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418673059"},{"@id":"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418687030"},{"@id":"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418777027"},{"@id":"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418819052"},{"@id":"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418846511"}],"inLanguage":"en-GB","potentialAction":[{"@type":"ReadAction","target":["https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/"]}]},{"@type":"ImageObject","inLanguage":"en-GB","@id":"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#primaryimage","url":"https:\/\/www.tradefinanceglobal.com\/wp-content\/uploads\/2016\/11\/Standby-Letter-of-Credit.jpg","contentUrl":"https:\/\/www.tradefinanceglobal.com\/wp-content\/uploads\/2016\/11\/Standby-Letter-of-Credit.jpg","width":1300,"height":861,"caption":"Standby Letter of Credit"},{"@type":"BreadcrumbList","@id":"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/www.tradefinanceglobal.com\/"},{"@type":"ListItem","position":2,"name":"What is a Standby Letter of Credit (SLOC)?"}]},{"@type":"WebSite","@id":"https:\/\/www.tradefinanceglobal.com\/#website","url":"https:\/\/www.tradefinanceglobal.com\/","name":"Trade Finance Global","description":"Transforming Trade, Treasury & Payments","publisher":{"@id":"https:\/\/www.tradefinanceglobal.com\/#organization"},"potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/www.tradefinanceglobal.com\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-GB"},{"@type":"Organization","@id":"https:\/\/www.tradefinanceglobal.com\/#organization","name":"Trade Finance Global","alternateName":"TFG","url":"https:\/\/www.tradefinanceglobal.com\/","logo":{"@type":"ImageObject","inLanguage":"en-GB","@id":"https:\/\/www.tradefinanceglobal.com\/#\/schema\/logo\/image\/","url":"https:\/\/www.tradefinanceglobal.com\/wp-content\/uploads\/2020\/04\/cropped-TFG-Logo-scaled-1.jpg","contentUrl":"https:\/\/www.tradefinanceglobal.com\/wp-content\/uploads\/2020\/04\/cropped-TFG-Logo-scaled-1.jpg","width":1300,"height":722,"caption":"Trade Finance Global"},"image":{"@id":"https:\/\/www.tradefinanceglobal.com\/#\/schema\/logo\/image\/"},"sameAs":["https:\/\/www.facebook.com\/tradefinanceglobal","https:\/\/x.com\/tradefinglobal","https:\/\/www.instagram.com\/tradefinance\/","https:\/\/www.linkedin.com\/company\/trade-finance-global","https:\/\/uk.pinterest.com\/tradefinanceglo\/","https:\/\/www.youtube.com\/tradefinanceglobal"]},{"@type":"Person","@id":"https:\/\/www.tradefinanceglobal.com\/#\/schema\/person\/4ff023bd3c0ed46451fca142b65cfde0","name":"Deepesh Patel","image":{"@type":"ImageObject","inLanguage":"en-GB","@id":"https:\/\/www.tradefinanceglobal.com\/#\/schema\/person\/image\/","url":"https:\/\/secure.gravatar.com\/avatar\/c5c7f46c74d085beb1f2c4863fc91b31?s=96&d=mm&r=g","contentUrl":"https:\/\/secure.gravatar.com\/avatar\/c5c7f46c74d085beb1f2c4863fc91b31?s=96&d=mm&r=g","caption":"Deepesh Patel"},"description":"Deepesh Patel is Editorial Director at Trade Finance Global (TFG) and host of Trade Finance Talks. Deepesh regularly chairs and speaks at international industry events held by the IFC, EBRD, IMN, WTO, Financial Times and Economist Impact, as well as industry associations including ICC, FCI, ITFA, ICISA and BAFT.","sameAs":["https:\/\/www.tradefinanceglobal.com","https:\/\/www.linkedin.com\/in\/deepeshpatel\/","https:\/\/x.com\/deepeshapatel"],"honorificPrefix":"Mr","gender":"male","knowsAbout":["Tradetech","Trade Finance"],"knowsLanguage":["English","Gujarati"],"jobTitle":"Editor-in-Chief","worksFor":"Trade Finance Global","url":"https:\/\/www.tradefinanceglobal.com\/posts\/author\/deepesh-patel\/"},{"@type":"Question","@id":"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418537128","position":1,"url":"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418537128","name":"What is a Standby Letters of Credit?","answerCount":1,"acceptedAnswer":{"@type":"Answer","text":"<br\/>A Standby Letter of Credit (SLOC) is seen as a financial guarantee and is used regularly in cross border trades. It is important to explain first what a <a href=\"\/letters-of-credit\/\">Letter of Credit (LC)<\/a> is and then move on to the explanation of an SLOC. The reasons these mechanisms are in place is due to allowing the flows of international trade to work in a sustainable and secure way.","inLanguage":"en-GB"},"inLanguage":"en-GB"},{"@type":"Question","@id":"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418568996","position":2,"url":"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418568996","name":"When would a Standby Letter of Credit (SLOC) be used?","answerCount":1,"acceptedAnswer":{"@type":"Answer","text":"<br\/>The reason to have an SLOC is as proof of the good faith element in a business transaction, which displays the clients\u2019 ability to re-pay and their credit quality. The financier who issues an SBLC usually does it on the basis that it is a guarantee and will not be drawn upon. <br\/><br\/>A typical example is seen within a building contract \u2013 where one party agrees to provide a bond or SLOC for 10% of the amount of the contract. This allows the other party to feel comfortable that if there is a condition or specific trigger that is not fulfilled, then they can draw upon this mechanism embedded within the contract.","inLanguage":"en-GB"},"inLanguage":"en-GB"},{"@type":"Question","@id":"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418606511","position":3,"url":"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418606511","name":"Why would an SLOC be used within international trade?","answerCount":1,"acceptedAnswer":{"@type":"Answer","text":"<br\/>An SLOC is used within international trade or high value agreements where the outcome may be a dispute and the potential of litigation and further action may be difficult to enforce. This may be due to jurisdictional or related enforcement difficulties. <br\/><br\/>An SLOC will in effect guarantee that payment to the ultimate beneficiary or intended recipient of funds will be made. On a commodities transaction where there is the agreement to pay for the underlying goods in 60 days and this is not made then with an SLOC; having the backdrop of a financial guarantee allows it to be called upon if the agreed conditions are not fulfilled. This is usually done on presentation of the SLOC to the financial institution that has provided it.","inLanguage":"en-GB"},"inLanguage":"en-GB"},{"@type":"Question","@id":"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418645178","position":4,"url":"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418645178","name":"How do I get an SLOC?","answerCount":1,"acceptedAnswer":{"@type":"Answer","text":"<br\/>To get an SLOC it will be the same process of getting a standard loan and there will need to be proof of the creditworthiness to the financial institution. For a creditworthy client, the shortest time scales quoted are usually a week to two weeks. It is thus seen as much quicker than the processing times on a standard loan.","inLanguage":"en-GB"},"inLanguage":"en-GB"},{"@type":"Question","@id":"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418673059","position":5,"url":"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418673059","name":"Are there any other types of SLOCs or guarantees?","answerCount":1,"acceptedAnswer":{"@type":"Answer","text":"<br\/>1. <a href=\"https:\/\/www.tradefinanceglobal.com\/risk-insurance\/guarantees\/bonds-and-guarantees\/\">Bid<\/a> Guarantees (referred to as bid bonds)<br\/>2. Retention Guarantees<br\/>3. Performance Guarantees (referred to as <a href=\"https:\/\/www.tradefinanceglobal.com\/risk-insurance\/bonds\/\">performance bonds<\/a>)<br\/>4. Advance Payment Guarantees","inLanguage":"en-GB"},"inLanguage":"en-GB"},{"@type":"Question","@id":"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418687030","position":6,"url":"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418687030","name":"What are the advantages of Standby Letters of Credit?","answerCount":1,"acceptedAnswer":{"@type":"Answer","text":"a. Cash flow is enhanced and no other security is needed to be put up<br\/>b. May allow diversification in cash cycle with prepayment not needed<br\/>c. The use of bid bonds allows lucrative contracts to be won by providing security","inLanguage":"en-GB"},"inLanguage":"en-GB"},{"@type":"Question","@id":"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418777027","position":7,"url":"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418777027","name":"Where do SLOCs come from?","answerCount":1,"acceptedAnswer":{"@type":"Answer","text":"<br\/>SLOCs come from the banking legislation of the United States, which prevents US credit institutions from taking on the obligations in relation to guarantees of third parties. This was the reason for the creation of SLOC, which are based on the uniform customs and practice for documentary credits.\u00a0<br\/><br\/>In 1998 the International Chamber of Commerce (ICC) added ISP98 (International Standby Practices 98) to act as the guidelines underpinning these financial products. However, many still use the ICC\u2019s older guide, <a href=\"\/letters-of-credit\/ucp-600\/\">Uniform Customs and Practices for Documentary Credits<\/a>, 2007 revision, ICC Publication 600.","inLanguage":"en-GB"},"inLanguage":"en-GB"},{"@type":"Question","@id":"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418819052","position":8,"url":"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418819052","name":"Lastly \u2013 What parties are there?","answerCount":1,"acceptedAnswer":{"@type":"Answer","text":"<br\/>- An applicant is the \u2018borrower\u2019 who requests the guarantee. In order to do, he provides collateral to the financial institution to prove credit worthiness. There will also be an annual fee; as outlined above<br\/>- The Issuing Bank provides the guarantee by way of an SLOC<br\/>- The beneficiary is the party who the guarantee is in favour of<br\/>- The confirming bank is the bank that confirms to pay the beneficiary as an alternative to the issuing bank making payment. The confirming bank will collect the amount that is owed from the Issuing Bank and the beneficiary will pay the confirming bank to do this<br\/>- The advising bank acts as a representative of the beneficiary and may accept an LC on behalf of the beneficiary; and collect on it. In some circumstances, the advising bank may be the confirming bank","inLanguage":"en-GB"},"inLanguage":"en-GB"},{"@type":"Question","@id":"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418846511","position":9,"url":"https:\/\/www.tradefinanceglobal.com\/posts\/standby-letter-of-credit-sloc\/#faq-question-1670418846511","name":"Can you assign the funds flowing from an SLOC?","answerCount":1,"acceptedAnswer":{"@type":"Answer","text":"We usually talk about the \u2018proceeds\u2019 of the SLOC and the beneficiary is able to do this. However, only the original beneficiary may exercise the drawer rights under the instrument and demand payment unless something different is agreed. <br\/><br\/>Only when the beneficiary has demanded payment, will the assignee then receive the proceeds (after an assignment has taken place). The Issuing Bank will need to be provided with notice or the issuing bank would pay funds to the original beneficiary and not the new assignee. Conversely, the only way an SLOC can be transferred is with consent of the written agreement of both the beneficiary and the issuing bank.","inLanguage":"en-GB"},"inLanguage":"en-GB"}]}},"featured_image_url":"https:\/\/www.tradefinanceglobal.com\/wp-content\/uploads\/2016\/11\/Standby-Letter-of-Credit.jpg","primary_category":"Articles","secondary_category":"Letters of Credit","_links":{"self":[{"href":"https:\/\/www.tradefinanceglobal.com\/wp-json\/wp\/v2\/posts\/9002","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.tradefinanceglobal.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.tradefinanceglobal.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.tradefinanceglobal.com\/wp-json\/wp\/v2\/users\/57"}],"replies":[{"embeddable":true,"href":"https:\/\/www.tradefinanceglobal.com\/wp-json\/wp\/v2\/comments?post=9002"}],"version-history":[{"count":3,"href":"https:\/\/www.tradefinanceglobal.com\/wp-json\/wp\/v2\/posts\/9002\/revisions"}],"predecessor-version":[{"id":74605,"href":"https:\/\/www.tradefinanceglobal.com\/wp-json\/wp\/v2\/posts\/9002\/revisions\/74605"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.tradefinanceglobal.com\/wp-json\/wp\/v2\/media\/9006"}],"wp:attachment":[{"href":"https:\/\/www.tradefinanceglobal.com\/wp-json\/wp\/v2\/media?parent=9002"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.tradefinanceglobal.com\/wp-json\/wp\/v2\/categories?post=9002"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.tradefinanceglobal.com\/wp-json\/wp\/v2\/tags?post=9002"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]},"reach_limit_for_guest":true}