Can You Lease a Letter of Credit?
Can You Lease a Letter of Credit?
The term “leasing a Letter of Credit” circulates often in trade finance circles, but it is misleading. Banks do not lease LCs. What actually happens is that a creditworthy party with surplus capacity at their bank can arrange for a Letter of Credit to be issued on behalf of another company. The beneficiary pays a fee for this arrangement, and the issuing bank still conducts its own due diligence. It is not a shortcut, and it is always subject to underwriting.
How “Leasing” an LC Works in Practice
A company with an unused credit line may agree to let another firm access it, usually through a structured agreement. The process looks like this:
- The credit-rich company asks its bank to issue an LC on behalf of the borrower (the applicant).
- The issuing bank still requires documentation, compliance checks, and clarity on the underlying transaction.
- The borrower pays the bank’s issuance fees plus an additional fee to the credit-rich company for providing access.
- The LC is delivered by SWIFT (MT700/760) and functions like any other legitimate instrument.
This is not a lease in the legal sense. It is a credit support arrangement, priced accordingly.
Fees and Economics
The economics usually involve:
- Bank issuance fee: often 0.5% – 2% per annum of the face value.
- Additional guarantor fee: 1% – 4% per annum, paid to the credit-rich counterparty.
- In higher-risk cases, upfront charges or cash collateral requirements may apply.
These costs make “leased” LCs more expensive than direct issuance, but for companies with no established banking lines, it can be a way to access trade finance.
Risks and Caveats
Borrowers should be aware:
- Any real LC requires full compliance review by the issuing bank.
- There is no such thing as a “leased LC” delivered outside SWIFT — such offers are fraudulent.
- Double pledging or reselling the same LC is not permitted and will collapse the arrangement.
Explore LC Structuring Options
Financely advises on arranging legitimate LC issuance, whether via direct facilities or third-party credit support.
Contact UsFinancely is an advisory and placement firm. We do not lease, sell, or guarantee bank instruments. Any LC issuance is subject to bank underwriting, KYC/AML checks, and executed documentation. Offers of “leased LCs” outside SWIFT are fraudulent and should be avoided.
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