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 ?
The new accounts receivable securitization facility provides for up to $200 million in standby letters of credit and working capital draws, subject to certain limitations, secured by trade receivables.
Bank Guarantees in International Trade: The Law and Practice of Independent (First Demand) Guarantees and Standby Letters of Credit in Civil Law and Common Law Jurisdictions, 4th Revised Edition
The portal enables corporate customers to seamlessly initiate products online in a fully secure environment, such as commercial and standby letters of credit, shipping and bankers guarantees, and financial requests.
The portal allows corporate clients to initiate products online in a safe atmosphere, like commercial and standby letters of credit, shipping and bankers guarantees, and financial requests.
0m sublimit for the issuance of standby letters of credit.
SUISSE BANK PLC supplies comprehensive trade finance instruments from its secure online platform allowing speedy adoption of guarantees (BG), standby letters of credit (SBLC), documentary letters of credit (LC), proofs of funds (POF) and warranties (avals).
Core competencies sit within the fields of trade finance and include: letters of credit, standby letters of credit, letters of guarantee and other instruments.
It is also processing HSH Nordbank's foreign guarantee business and standby Letters of Credit, alongside specialist service documentation including ship sales transactions and conditional payments.
He was able to raise money for a telecommunications company by purchasing standby letters of credit which enabled him to obtain guaranteed loans which provided the capital.
In addition, our trade standby letters of credit capability and enhanced messaging have been expanded to some 15 countries.
To address this concern, the finance IPT developed a plan to institutionalize the use of Standby Letters of Credit with commercial banking sources in lieu of termination liability.
Political risks can impact firms in many ways, including preventing the repatriation of profits from an investment, disrupting the operations of overseas suppliers or forcing the payment of unfairly called standby letters of credit," said Sam Wilkin, country risk adviser.