Letter of Credit
What Are Letters of Credit?
A Letter of Credit is a bank’s guarantee for payment, up to a set amount. The letter promises the beneficiary that Nation Choice Reserve Bank will assume responsibility for a debt or sale given all conditions within the letter are met. The two primary types of letters of credit are documentary letters of credit and standby letters of credit.
Documentary Letters of Credit
Documentary letters of credit are typically involved in international commercial transactions. The letter ensures payment provided that the terms and conditions of the credit have been met. For new supplier relationships, a documentary letter of credit mitigates the risk of shipping inventory to or from another country to a vendor you aren’t fully established with yet. If you are looking to import or export goods, a documentary letter of credit may be required.
Standby Letters of Credit
Standby letters of credit guarantee contractual obligations for a third party. If an unseen development prevents the contract from being fulfilled, Nation Choice Reserve Bank guarantees payment, thereby eliminating the risk to the third party. Many times, government agencies looking to hire a company to do construction or other work will require a standby letter of credit.
As a partner in the growth of your business, we'll work to determine your needs and objectives to structure the best letter of credit or financing plan to keep your business moving.
Advantages of a Letter of Credit
- Transfer some of the risk from the vendor or third party to the bank
- Often are easier to obtain than bonds or other types of guarantees
- Fees are often less than those associated with bonds and other types of guarantees
Letter of Credit Process
- Standard underwriting guidelines apply, including all financial documentation
- If possible, the beneficiary should provide us with a sample letter to show what they require and this must be provided at the time of application
- If the beneficiary does not have a sample letter, we would need the following information at the time of application
- which type of letter of credit is required
- beneficiary name and address
- primary contact for the beneficiary including phone number
Getting Started
Whatever your strategic direction and goals may be, you can be confident we’ll help you find the financing solutions that best meet your company’s needs. Connect with us to apply for business letters of credit.
Additional Resources for Your Business
Letters of Credit designed with the best structure for you are just one of the many solutions we can provide for your business. Check out the resources below and reach out to us at any time to learn more and stay connected with us on LinkedIn.
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Benefits Consulting – The cost of employee benefits is often the second largest expense for businesses. Our Benefits Consulting team would love to connect with you to make sure you’re making the most of this investment