How To Secure A Bridge Loan To Back A Letter Of Credit
When collateral falls short, sponsors often turn to bridge loans to cover the margin required for a standby or commercial letter of credit. This guide explains how such facilities are structured, what lenders review, and the equity signals investors expect before approving capital support.
Why Bridge Loans Are Used For Letters Of Credit
Banks usually require 100 percent collateral or a strong balance sheet before issuing a letter of credit. Many sponsors cannot lock that much cash. A bridge loan provides temporary liquidity to post the margin, allowing trade or project execution while longer term financing is arranged.
What Lenders Want To See
Credit Strength
- Audited financials with positive equity
- EBITDA coverage for interest expense
- History of timely debt service
- No unresolved defaults or tax liens
Collateral Substitutes
- Receivables from strong counterparties
- Inventory with verified storage and title
- Project equity contributions already funded
- Existing letters of intent or contracts
Exit Path
- Confirmed take-out financing
- Planned refinancing once project reaches COD
- Expected trade settlement flows
- Equity bridge repayment commitments
What Equity Partners Expect
Equity partners see bridge loans as a signal of seriousness and risk sharing. Their support often depends on how much cash the sponsor has already put into the deal.
- Cash At Risk.
Minimum 20 to 30 percent equity funded before asking for a bridge loan.
- Governance.
Clear shareholder agreements and board resolutions authorizing borrowing.
- Alignment.
Repayment waterfall that protects equity while giving lenders clear priority.
- Transparency.
A complete data room with contracts, permits, and risk assessments.
Typical Bridge Loan Structures
Trade Finance Applications
Short tenor facilities of 3 to 12 months. Backed by purchase orders or contracts. Lenders focus on counterparty credit and delivery schedules.
Project Finance Applications
Equity bridge loans of 12 to 24 months. Used to secure bank guarantees or letters of credit for EPC contracts. Repaid from long term debt once financial close is achieved.
Documentation Lenders Review
- Audited financials and management accounts
- Corporate approvals and board resolutions
- Draft letter of credit terms or SWIFT specimen
- Underlying contracts and counterparties
- Collateral schedules and valuations
- Repayment source analysis
Timeline And Pricing
Bridge loan approvals are faster than long term project debt but still require preparation. Most facilities take 4 to 8 weeks from application to disbursement.
- Pricing.
SOFR plus 500 to 900 basis points or fixed 12 to 20 percent per year in private credit markets.
- Tenor.
3 to 24 months depending on the deal type.
- Advance Rates.
50 to 80 percent of collateral or contract value.
- Fees.
Arrangement, commitment, and exit fees negotiated case by case.
Request A Bridge Loan And LC Support Term Sheet
Share your letter of credit requirement, collateral available, and project or trade contracts. We will respond with lender options, advance rate guidance, and timelines.
Start Your Bridge Loan Request
Financely arranges and underwrites bridge loan facilities through its network of private credit funds, banks, and equity partners. All services are best efforts and subject to due diligence, KYC and AML, sanctions screening, collateral review, and third party approval. Nothing here is a commitment to lend or guarantee.