Standby Letter of Credit

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Standby Letter of Credit

Documents evidencing failure of the bank's customer (the applicant) to pay an obligation when due.

Standby letter of credit

Agreement to guarantee invoice payments to a supplier; a standby LOC promises to pay the seller if the buyer fails to pay.

Standby Letter of Credit

A statement issued by a bank to the buyer of a good stating that the seller will receive payment on time and in the correct amount. If the buyer fails to make payment, the bank will do so on his/her behalf. The buyer presents a letter of credit to the seller, which virtually eliminates the risk that the seller will not be paid. Letters of credit have become very common in international commerce, as distance and other factors make it difficult for sellers to establish the creditworthiness of every buyer.

standby letter of credit

Usually shortened to standby or to LOC. It is the agreement by a lender to disburse funds to a third party if the lender's customer defaults on its obligations to that third party (called the beneficiary).

Rather than pay a large security deposit for a lease, a tenant might offer the landlord a standby letter of credit (LOC) issued by the tenant's bank. For all but the most exceptionally credit-worthy customers, the bank will usually require cash collateral in the form of a certificate of deposit or comparable asset.

The issuance fee is generally in the range of 1/2 to 2 percent per year for the issuance of the standby,which should be less than the money earned by the cash collateral.

The LOC will usually specify the exact manner in which the beneficiary must collect funds, such as presentation of the original LOC at a certain branch location to a particular officer at that location, accompanied by a statement regarding the customer's default. Normally, the statement must be worded exactly in the manner specified within the body of the LOC and any paraphrasing at all will result in denial of payment.The LOC will also have a date and time of expiration.

Landlords (or anyone else) accepting standby letters of credit should be aware that the law in this area is very precise in its requirements.In many states,minor errors in wording the documents presented in order to collect on a letter of credit might result in the bank's legally justifiable refusal to pay. Presenting documents to the wrong person, or at the wrong location, could result in refusal to pay.That refusal might not be curable because of the expiration of the time limits within which to make the claim.The better practice is to pay a lawyer with good malpractice insurance to review the documents and prepare the request for payment.

References in periodicals archive ?
Through the Wells Fargo HSBC Trade Bank, which has a fast track program with Ex-Im Bank, we received Ex-Im Bank's working capital guarantee, and the Trade Bank provided stand-by letters of credit securing advance payments made by our Indian customer.
in conjunction with Fortune Mint Holdings Limited, Hong Kong, for capital raising with the issuance of a series of three irrevocable stand-by letters of credit ("SBLC") totaling [euro]300 million Euros (approximately $429 million USD at the most recent exchange rates).
Aquatech has relied on Ex-Im Bank working capital guarantees and stand-by letters of credit for more than a decade," said Sharma.
The FHLBATL provides this enhancement through confirmation or stand-by letters of credit, which backs the member's letter of credit used as the credit enhancement for tax-exempt debt.
law and include residential and commercial real estate financing, financing for business equipment and trade goods, stand-by letters of credit and some construction financing.
The Company has a $4,000,000 credit facility with one if its banks, which provides $3,000,000 for issuance of stand-by letters of credit ($2,655,000 in letters of credit were outstanding, as of January 31, 2008, in favor of the Company's workers compensation insurance carrier to secure the estimated unfunded portion of the Company's workers compensation insurance liabilities), and a $1,000,000 revolving credit line.
The Company anticipates receiving the proceeds from the liquidation of certain merchandise and the release of stand-by letters of credit on the island of Antigua in the third quarter of fiscal 2000.
The agreement consists of a $50 million credit facility with a $35 million sub-limit for stand-by letters of credit.
The Company notified the FCC that it will deposit $100 million in cash in an escrow account to be available to pay 800 MHz retuning costs pursuant to the terms of the Consensus Plan, and will secure the remaining $750 million commitment through one or more irrevocable stand-by letters of credit issued by internationally recognized commercial lending institutions.
The wrongful calling of a guarantee product applies to loss where stand-by letters of credit that have been posted as a guarantee of performance are called due to acts of government.
5 million associated with the Letters of Guarantee was disclosed as being funded by way of $500,000 cash from the Company's treasury, US$3 million by way of irrevocable stand-by letters of credit and US$2 million by way of a performance security guarantee.
5 million associated with the Letters of Guarantee was funded by way of $500,000 cash from the Company's treasury, US$3 million by way of irrevocable stand-by letters of credit and US$2 million by way of a performance security guarantee.