Letters of Credit and Trade Finance

How to Get a Letter of Credit

What you need before you apply

A bank issuing an LC takes the risk that you will not reimburse it when it pays. Before applying, have:

• A banking relationship with a bank that issues trade instruments, or a plan to open one.
• Company documents for know your customer checks: registration, ownership, directors and beneficial owners.
• Financial statements and recent bank statements.
• The sales contract or pro forma invoice from the supplier.
• Details of the supplier, goods, origin, shipment route and Incoterms.
• A source of reimbursement, either cash, an existing trade line or a planned facility such as an import trade loan.
• Security or margin, if the bank asks for cash cover, a deposit or other collateral.

Newer or smaller companies are often asked for partial or full cash margin until they build a track record.

Choosing issuing and advising banks

Issuing bank. Usually your own bank. It needs a credit limit for you and correspondent relationships with banks in your supplier's country. If it cannot issue, other banks or trade finance providers may be able to, subject to their own checks.

Advising bank. Usually in the supplier's country, it authenticates the LC and passes it on. The supplier may name its preferred bank.

Confirming bank. If your supplier asks for confirmation, check early that a bank is willing to confirm your issuing bank. See confirmed letter of credit.

Bank choice affects cost. See letter of credit fees explained.

The LC application and draft wording

The application tells the bank exactly what to issue. Key fields include:

• Beneficiary and their bank.
• Amount, currency and tolerance.
• Expiry date and place.
• Payment terms: sight or usance.
• Latest shipment date, ports, partial shipments and transhipment.
• Description of goods, matching the contract.
• Required documents, such as invoice, bill of lading, packing list, certificate of origin, inspection certificate and insurance.
• Presentation period.
• Confirmation instructions and charges.
• Whether the LC is transferable. See transferable letter of credit.

Good practice:

• Share the draft with the supplier before you apply, so they can confirm they can comply.
• Keep goods descriptions short and exact.
• Ask only for documents that prove what you need.
• Avoid conditions that cannot be checked from documents.

Importers can read more in letters of credit for importers.

Issuance, advising, and amendments

1. Credit approval. The bank approves your limit or margin.
2. Issuance. The bank issues the LC, usually by SWIFT MT700.
3. Advising. The advising bank authenticates it and delivers it to the supplier.
4. Review by supplier. The supplier checks it and may ask for amendments.
5. Amendments. You request changes from your bank, which issues an MT707. Amendments need the beneficiary's acceptance and usually carry a fee.
6. Shipment and presentation. The supplier ships and presents documents.
7. Payment and reimbursement. Your bank pays and debits you or your facility, then releases documents so you can clear the goods.

See documentary letter of credit for the full flow.

Common reasons banks decline or delay

• No credit limit or not enough limit for the amount.
• Incomplete know your customer information.
• Sanctions or compliance concerns about parties, goods, vessels or routes.
• No clear source of reimbursement.
• Thin financial statements for the size of the request.
• Unclear contract or mismatched terms between contract and LC.
• Correspondent gaps, where the bank has no relationship in the supplier's country.
• Commodity or route risk outside the bank's appetite.

Many of these can be addressed by preparing the file properly, adding security, or using a self-liquidating structure where sale proceeds repay the bank.

How Financely helps arrange LC issuance with lenders

Financely is a fee-based arranger and advisor, not a bank. We do not issue letters of credit and we do not lend. We help importers and traders:

• Assess readiness and prepare the application pack.
• Draft LC terms that suppliers can perform.
• Identify banks or trade finance providers that may issue or support the LC.
• Structure reimbursement, for example combining an LC with an import loan.

Fees pay for that work, not for an outcome, and each bank makes its own credit decision. See trade finance advisory and trade finance. For background, see what is trade finance.

Frequently asked questions

How long does it take to get a letter of credit?

With an existing limit, issuance can be quick. A new relationship takes longer because of onboarding and credit approval.

Can I get an LC without collateral?

Sometimes, if you have a strong credit profile. Many banks ask newer clients for cash margin or other security.

Can a supplier's bank issue my LC?

No. The issuing bank acts for the buyer. The supplier's bank usually advises or confirms.

Does Financely issue LCs?

No. Financely advises and arranges; banks issue.