Letter of Credit (LC) Guidance
A bank guarantee of payment that gives your trading partners confidence.
Overview
A letter of credit is a bank's commitment to pay the seller on behalf of the buyer, subject to specified documents and conditions being met. It is widely used in international and domestic trade.
Key considerations
- Business with trade transactions
- Banking relationship
- Acceptable credit profile
- Trade documentation
Typical eligibility
These are indicative criteria. Actual requirements vary by lender.
- Business with trade transactions
- Banking relationship
- Acceptable credit profile
- Trade documentation
Typical documents
Document requirements vary by lender and loan type.
- Business registration
- Bank statements
- Trade contract/proforma invoice
- Import/export code if applicable
Frequently asked questions
How does an LC work?
The buyer's bank issues an LC promising to pay the seller upon presentation of specified documents. The bank verifies documents and pays if conditions are met.
What types of LC are there?
Common types include sight LC, usance LC, revocable/irrevocable, and confirmed/unconfirmed. Each has different risk and payment terms.
Your next step
Ready to explore Letter of Credit?
Share your requirement and a SMFINCARE financing specialist will help you understand what to prepare.
This assessment is indicative and educational. It does not constitute a sanction, approval, credit decision or guarantee. Final eligibility, interest rate, loan amount, documentation and disbursement are determined by the relevant lender according to its policies and applicable law.