Loans To Fund Letter Of Credit Issuance
Loans To Fund Letter Of Credit Issuance
When This Financing Is Appropriate
- The issuing bank requires a cash margin to open a documentary Letter of Credit under Uniform Customs and Practice for Documentary Credits Publication Number 600 or a standby Letter of Credit under International Standby Practices Publication Number 98.
- The applicant wishes to avoid tying up working capital in a blocked deposit for the life of the Letter of Credit.
- The counterparty requires a confirmed Letter of Credit and the confirmation fee and margin need to be funded.
- A project, supply contract, or framework agreement requires multiple Letters of Credit with rolling issuance windows and seasonal peaks.
Structures We Arrange
- Term or revolving line sized to the cash margin and issuing costs.
- Proceeds placed in a pledged account held with the issuing bank.
- Security includes assignment of proceeds and control over the pledged account.
- Advance against eligible receivables linked to the trade cycle.
- Notice of assignment and controlled collection accounts.
- Concentration, aging, and dilution tests with periodic borrowing base certificates.
- Advance against warehouse stock under collateral management or against in-transit documents of title.
- Haircuts by commodity, location, and hedge policy where relevant.
- Insurance with lender loss payee and inspection rights.
How The Loan Interacts With The Letter Of Credit
- Wording And Issuance. We prepare draft wording field by field for the Letter of Credit. We align goods description, Incoterms, shipment windows, original document counts, and presentation periods with the sale and transport contracts.
- Margin Funding. The loan funds the cash margin and related charges. Funds are held in a pledged account and linked to the Society for Worldwide Interbank Financial Telecommunication messages for issuance and reimbursement.
- Confirmation Where Required. If the beneficiary requests confirmation, we source a confirming bank and include the confirmation fee within the financing plan.
- Reimbursement And Settlement. We map the direct payment path or the reimbursing bank path and set clear expectations for Society for Worldwide Interbank Financial Telecommunication message flows and value dates.
- Repayment. The loan is repaid from operating cash flow or from assigned proceeds when the Letter of Credit pays at sight or at maturity for usance terms.
Security And Control Framework
- Pledged margin account subject to a control agreement.
- Assignment of proceeds under the Letter of Credit.
- Notice of assignment to the issuing bank and, where relevant, the advising or confirming bank.
- Sanctions, know-your-customer, and beneficial ownership checks on all parties.
- Collateral management at approved warehouses and inspection rights.
- Credit insurance on receivables or guarantees for performance or advance payment risk.
- Hedging policy for price or currency exposures tied to the trade cycle.
- Step-in rights, stop-fund triggers, and draw mechanics tied to shipment milestones.
Process From Mandate To Issuance
- Assessment. Review of the contract, Incoterms, transport plan, insurance, and counterparty details. Confirmation of the rule set: Uniform Customs and Practice for Documentary Credits Publication Number 600 or International Standby Practices Publication Number 98.
- Structure. Selection of loan type, sizing, tenor, security package, and repayment path that match the Letter of Credit wording and expected reimbursement.
- Underwriting Pack. Cash flow model, shipment schedule, collateral narrative, draft Letter of Credit wording, discrepancy playbook, and a concise data room.
- Distribution. Targeted approach to banks and funds that actively lend to this segment. Our objective is two to three comparable proposals for a clean file.
- Negotiation. Pricing, covenants, waivers, and fee line-items are negotiated to a clear term sheet. We seek to remove unnecessary charges.
- Closing And Issuance. Conditions precedent, account control, final checks on sanctions and know-your-customer, issuance of the Letter of Credit, and monitoring through first draw.
Eligibility Criteria
- Verifiable purchase order or sales contract with a clear shipment or performance plan.
- Directors and beneficial owners available for know-your-customer checks.
- Willingness to assign proceeds, operate controlled accounts, and accept reasonable collateral and reporting standards.
- No crypto assets, no paper trading, and no activity that conflicts with sanctions or applicable law.
Documents Required To Start
- Contract pack: purchase orders or sales contracts, Incoterms, price basis, and any technical specifications.
- Transport plan and carrier details or warehouse details for storage with insurance evidence.
- Corporate documentation, group structure chart, and beneficial ownership information.
- Twelve months of bank statements and the latest financial statements.
- Draft wording for the proposed Letter of Credit and any required standby or guarantee language.
Pricing And Economics
- Lender Terms. Reference rate plus spread on drawn amounts, and where relevant a commitment charge on undrawn lines. Confirmation fees for confirmed Letters of Credit, and standard advising and Society for Worldwide Interbank Financial Telecommunication message charges.
- Our Terms. Retainer of nine thousand six hundred fifty United States dollars on engagement. Success fee of two and a half percent of the face amount for issued Letters of Credit or standby Letters of Credit arranged through this process, or three percent of any margin or gap capital raised. Minimum success fee fifteen thousand United States dollars, paid at issuance or first draw. Escrow is available.
- Negotiation Approach. We press for competitive pricing on the utilization period and we address non-core fee items early to avoid later delays.
Frequently Asked Questions
Request Terms For A Loan Linked To Letter Of Credit Issuance
Please share your contract pack, shipment plan, and target issuance window. We will return with a proposed structure, lender route, and next steps.
Request A Term SheetThis page addresses corporate users. Nothing here is a commitment to lend. All services are subject to know-your-customer checks, anti-money-laundering controls, sanctions compliance, and lender approvals. We work on a best-efforts basis and all contact with lenders is chaperoned.
Get Started With Us
Submit Your Deal & Receive a Proposal Within 1-3 Working Days
Submit your deal using our secure intake form, and receive a quote within 1-3 business days. Existing clients can connect with their relationship manager through our secure web portal.
All submissions are
promptly reviewed, and all communications are conducted through the intake form or the client portal for a seamless and secure process.
Thank you for considering working with us. A nominal fee of US$500 is required upon completion of each form. This fee covers the time and effort we invest in reviewing your submission and crafting a thorough proposal. We receive numerous inquiries and prioritize those that carry this fee, ensuring serious applicants receive prompt attention.
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Tap into solutions like letters of credit, bank guarantees, and payment facilitation. We address the challenge of global transaction risk through structured strategies that foster cross-border growth. Complete the form to unlock streamlined funding aligned with your commercial objectives.
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Financely assists banks facing Basel III pressures by distributing trade finance deals and providing collateral for letters of credit. We reduce capital burdens while preserving client relationships and fostering service expansion. Submit your request to optimize your trade finance offerings.
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Disclaimer: Financely provides financing based on due diligence and feasibility. Approval is not guaranteed, and past performance does not predict future outcomes. All terms are subject to review. Financely primarily assists with structuring and distribution. Qualified parties carry out the project if the client approves the proposal.
