Standby Letters of Credit (SLOCs) are often misunderstood, which makes them an easy target for fraudsters looking to take advantage of businesses in need of financing. If someone promises you a Standby Letter of Credit — no questions asked, no collateral required, no underwriting involved — you’re dealing with a scam.
The Number One Red Flag: A Guaranteed SLOC for a Flat Fee
Legitimate lenders don’t hand out SLOCs like candy. A real SLOC transaction involves underwriting, which means the lender assesses your financial position, business performance, and risk level before issuing anything. There’s always an opportunity cost to extending credit, and no real lender will ignore that.
Scammers, on the other hand, promise an SLOC to anyone willing to pay a flat fee. They don’t ask for collateral, financial statements, or proof of business performance. That’s because they aren’t actually issuing anything of value — they’re just collecting fees and disappearing.
Why Real SLOCs Require Capital or Collateral
A Standby Letter of Credit is a commitment from a bank or financial institution to cover a payment obligation if the borrower defaults. This means the lender is putting its own money and reputation on the line.
To offset that risk, they require security. That could mean:
- Cash collateral
- Assets as collateral (machinery, commodities)
- Strong financials that justify the risk
If someone is willing to issue an SLOC without any of these, they aren’t a lender — they’re a con artist.
The Bottom Line
SLOCs are serious financial instruments that require real underwriting and risk assessment. If someone guarantees one without looking at your financials or requiring security, they aren’t offering you credit — they’re setting you up for a scam. Stick to regulated banks and verified lenders, and don’t fall for the promise of something for nothing.
