A form of loan from a financial institution to be used only in the instance of a shortfall in net revenue for debt service (i.e., a contingent loan). A letter of credit is security provided directly to the lender/bondholders (via a bond trustee), rather than to the borrower/project sponsor.
A bank's promise that a shipment of goods will be paid for on arrival. It's used mostly in foreign trade but is also used domestically to guarantee payment of securities.
A guarantee from the Importer's Bank that it will act on behalf of the importer and pay the exporter for merchandise if all documents are in order.
Written document issued by a financial institution allowing the person named to withdraw a certain amount of money.
A means of payment widely used in trade. For the buyer, it provides security that payment will be handed over only when there is evidence of despatch of the correct goods. For the supplier, it adds some security to the payment mechanism. L/Cs are normally issued subject to the terms of UCP500. Standby letters of credit are used in the same way as on demand bonds and should be subject to ISP
A written instrument issued by a bank at the request of its customer, the Importer (Applicant), whereby the bank promises to pay the Exporter (Beneficiary) for goods or services provided that the Exporter presents all documents called for, exactly as stipulated in the Letter of Credit, and meets all other terms and conditions set out in the Letter of Credit. Also referred to as a Documentary Credit.
An instrument or document issued by a bank guaranteeing bondholder payment by enabling the bond trustee to draw from the bank the full amount of principal and interest due on each bond payment date.
Document issued by a financial institution that substitutes the credit of the institution for the borrower. Used extensively in international trade, it guarantees the payment of a customer`s drafts up to a stated amount for a certain period.
Document from a bank authorising payment on behalf of a client to a third party.
a guarantee from a bank that it will provide the funds needed to complete a purchase.
A document issued by a bank on behalf of a customer authorising a third party to draw funds to a specified amount from its branches or correspondents, usually in another country, when the conditions set out in the document have been met.
Agreement to honor demands for payment under certain conditions.
An instrument of payment, issued by the buyer's bank, that ensures payment to the seller.
A letter addressed by a banker to a correspondent bank guaranteeing payment, when evidenced by documents confirming shipment of goods. This may be an irrevocable or revocable letter of credit.
A financial instrument, which guarantees payment by a bank in the event payment is not forthcoming from the creditor in a prescribed fashion.
A financial guaranty issued by a bank that permits the party to which it is issued to draw funds from the bank in the event of a valid unpaid claim against the other party; in reinsurance, typically used to permit reserve credit to be taken with respect to non-admitted reinsurance; an alternative to funds withheld and modified coinsurance. Also referred to as an LOC.
A standby document issued by the Bank on behalf of a member as a guarantee against which funds can be drawn, that is used to facilitate various types of business transactions the member may have with third parties. “Standby” is defined as: The Bank standing by to make good on the obligation made by the obligor to the beneficiary.
If a company wants to finance some sort of international trade on credit it can ask a bank to issue a letter of credit in favour of its supplier. By this, the bank guarantees to make payment on a specific date as long as certain qualifications have been met such as providing satisfactory shipping documents. When the bank accepts the bill it writes "accepted" above the signature. The supplier can either hold the bill to maturity – whereupon the company pays the supplier – or discount the accepted bill with another bank which will either hold it as an investment or trade it on the secondary market.
An obligation issued by a bank on behalf of a bank customer to a third party. There are many different kinds of letters of credit. The two most common are commercial letters and standby letters. A commercial or trade letter of credit is a bank promise to pay the third party for the purchase of goods by the bank's customer. A standby letter of credit is a bank promise to pay the third party in the event of some defined failure by the bank's customer, usually, but not always, a failure to pay. Standby letters of credit are often used as credit enhancements for securities.
A bank's agreement or commitment, made at a customer's request, to honor a third party's demands of payment upon compliance with the conditions specified in the letter of credit.
A document issued by a bank which guarantees the payment of a customer's draft up to a specific amount and time period.
A document issued by a bank at the request of the buyer of goods. The Letter of Credit guarantees payment to the seller as long as the seller meets the conditions set out in the document. Abbreviations: LOC; LC; L/C.
This is a letter one bank sends to a second bank asking them to pay money to a named person. However, certain conditions must be met.
A form of credit enhancement provided by banks that competes with surety bonds and other forms of financial guarantees provided by insurers.
The Letter of Credit is a financial Instrument issued by an importer's bank (opening bank, on behalf of the importer). The opening bank substitutes its own credit for that of the importer, and undertakes a commitment to designated beneficiary (the exporter) to pay a stated amount within a stated time frame, provided that the exporter complies with all the terms and conditions of the Letter of Credit.
Letter of Guarantee Letter of intent
A letter issued by an importer's bank guaranteeing payment upon presentation of specified trade documents (invoice, bill of lading, inspection and insurance certificates, etc.).
An authorization by a bank that they will stand behind the performance of a buyer under specified conditions. This allows a seller to feel free to deliver goods or services to a buyer without concern for the buyer's ability to pay.
A financial instrument issued by any bank, wherein
A promise by a debtor’s bank to pay the creditor upon presentation of specified documents.
A letter generated by a bank to a seller that authorizes a draft payment for a specific amount based on meeting a predefined set of terms (an exact description of the goods, services and quantities).
a paper issued by a buyer's bank as proof that the seller will be paid.
A form of guarantee of payment issued by a bank on behalf of a borrower that assures the payment of interest and repayment of principal on bond issues.
An engagement by a bank made at the request of a customer that the issuer will honor drafts or other demands for payment upon compliance with the conditions specified in the letter of credit. A letter of credit may be either revocable or irrevocable.
Undertaking, usually on the part of a bank and at the request of one of the bank's customers, to pay a named beneficiary a specified amount of money (or to deliver an item of value) if the beneficiary presents documents in accordance with the terms and conditions specified in the letter of credit.
A document issued by a bank which guarantees the payment of a customer's drafts for a specified period and up to a specified amount. see also credit.
A bank or other fiduciary source's commitment that guarantees the payment of principal and interest. MUNICIPAL SECURITIES PRINCIPAL A municipal securities principal, operating under MSRB guidelines, who has supervisory capacity and responsibility over the municipal securities operations of the firm.
Banking mechanism that allows importers to offer secure terms to exporters. (See Documentary credits).
Letters of credit are financial instruments, issued by a bank, that undertake to pay a fixed sum to a seller on production of specified documentation. They can be arranged as part of a Trade Finance facility.
issued by a bank on request of an importer stating that the bank will pay an amount of money to a stated beneficiary
This is a document, issued by a bank at the buyer’s request in favor of the seller, promising to pay the agreed amount of money upon receipt by the bank of certain documents within a specified time. With an irrevocable Letter of Credit you are guaranteed payment if you comply with all the terms and conditions of the Letter of Credit.
A document issued by a bank on behalf of a customer authorizing the customer or a third party to draw drafts on the bank up to a stipulated amount and under specified terms and conditions. One type of LC guarantees that the bank will meet a customer’s obligation if the customer is unable or unwilling to meet it.
An instrument issued by a bank on behalf of an importer that guarantees an exporter payment for goods or services, provided the terms of the credit are met.
A Canadian bank confirms the validity of a letter of credit issued by a foreign bank on behalf of the foreign importer, guaranteeing payment to the Canadian exporter provided that all terms in the document have been met. An unconfirmed letter of credit does not guarantee payment so, if the foreign bank defaults, the Canadian exporter will not be paid. Canadian exporters should accept only confirmed letters of credit as a form of payment.
A financial instrument, issued to a company or person by a bank that substitutes the bank's credit for the company's credit.
A financial instrument, often used in international trade or business that is issued by a bank. It guarantees the payment of up to a maximum amount of money, for a specified period of time and subject to certain terms and conditions. Such Letters of Credit and Stand by Letters of Credit are key most usually to facilitate payment on overseas shipping transactions.
a document issued by a bank that guarantees the payment of a customer's draft; substitutes the bank's credit for the customer's credit
a banking mechanism which allows importers to offer secure
a bank instrument that is issued to protect the beneficiary the account party and the issuer of the credit, which is usually a bank The issue of the innovative instrument was organised by the Belgian bank KBC Bank NV
a bank issued document which guarantees the payment of a customer's drafts
a bank issued instrument used to guarantee the payment of a bill of exchange
a bank mechanism, which allows importers to offer secure terms to exporters
a conditional bank guarantee of payment
a conditional payment guarantee provided by an importer's bank to the exporter
a contract issued by a bank at the buyers request
a credit line opened by a bank and debited when the buyer shows the carrier-endorsed bill of lading to the bank
a document addressed to a beneficiary (the landlord) from the issuer (usually a bank) at the request of the applicant for credit (the tenant)
a document issued by a bank, according to the instructions of the buyer of the goods, committing itself to honor drafts drawn upon by the seller in accordance with the specified terms and conditions
a document issued by a bank on behalf of a buyer committing to pay a seller on time and for the correct amount for goods purchased
a document issued by a bank stating its commitment to pay someone (supplier/exporter/seller) a stated amount of money on behalf of a buyer (importer) so long as the seller meets very specific terms and conditions
a document issued by a bank, which guarantees payment to facilitate the import or export of goods
a document, issued by a commercial bank to an agent in the exporting country, authorizing the agent to give credit, within the stated limits, to the bearer named in the letter
a document obtained from your bank that certifies your ability to cover the defined amount
a financial guaranty issued by a bank or financial institution that permits the party to which it is issued to draw funds from the bank if necessary
a flexible and widely accepted payment method that can be tailored to reflect the needs of both the buyer and the seller
a form of documentary credit
a form of guarantee that the remaining balance to complete the purchase of the Life Lease will be available to assist in the cost of construction when required by the Non Profit Sponsor
a form of payment used in import-export activities
a form of payment whereby a bank undertakes a payment obligation on behalf of a buyer for its own account on specified conditions
a guarantee from a bank that a specific obligation will be honored by the bank if the borrower fails to pay
a guarantee of payment by a bank (issuing institution)to a third party for a specific amount of money, if certain conditions are met
a legal document backed by a bank
a letter by which a person (or corporation) agrees to repay money or credit given to a second person by a third person
a letter issued by a banking house to a person who desires to travel abroad
an agreement between the importer and a bank, whereby the issuing bank acts on behalf of the client and authorizes another bank (the confirming bank) to make payment to the exporter
an instruction to a bank setting forth the terms and conditions which must be complied with before monies can be transferred from buyer to seller
an instrument issued by a bank, or other person, at the request of a person called an account party
an instrument issued by a bank through which the bank substitutes its own credit for that of a customer
an instrument issued by a bank to an individual or a company, the beneficiary (the seller), by which the bank substitutes its own credit for that of the buyer
an instrument issued by a bank, usually addressed to a correspondent bank, stating that it will accept drafts charged against it in the name of a person or company
an internationally recognized instrument issued by a bank on behalf of its client, the purchaser
an specialized form of financing used by business to facilitate import/export transactions
an undertaking issued by a bank in favor of a Beneficiary, which substitutes the bank's creditworthiness for that of the applicant
an undertaking of payment by a bank upon the satisfaction of preestablished conditions
a payment undertaking given by the issuing bank on behalf of the buyer/applicant to pay a seller/beneficiary a given amount of money on presentation of specified documents representing the supply of goods within specific time limits
a payment vehicle that guarantees payment to suppliers and ensures that clients get the products/services they contracted for
a promise backed by a bank to make a future payment, sometimes secured by personal assets
a promise of payment by one party to another
a promissory statement written by a bank that backs a business and its obligations, useful for buying products or equipment
a separate document from a trust receipt
a Signed instrument and an undertaking by the banker of the buyer to pay the seller a certain sum of money on presentation of documents evidencing Shipment of Specified goods subject to Compliance with the stipulated terms and Conditions
a similar documentary arrangement, but the principal difference being that it is a claim against the bank, rather than a bank's client
a very formal document, requiring strict adherence to every detail
1) Bank guarantee of payment for goods not yet received. Often used in international trade; 2) Bank guarantee of a bond issued in the capital markets.
Used on some federal grants. OSURF reimbursed via a bank transfer, usually on a monthly basis.
A letter issued by a bank authorizing the bearer to draw a stated amount of money from the issuing bank, its branches, or other associated banks or agencies.
A letter containing a request that the party to whom it is addressed pay the bearer or person named therein money, sell him commodities on credit, or give him something of value, with the intention that the addressee later seek payment from the writer of the letter. It is used by a buyer to secure goods without the necessity of having cash on hand.
an assurance by a bank that payment will be made as long as the sales terms agreed to by the buyer and seller are met
Letter from a bank indicating it has established a credit lien for the company to draw upon under specified conditions.
A pledge by a bank, or other financial entity, made on behalf of a tenant for funds to be demanded by a landlord in the event of a default pursuant to the specific terms of a lease agreement. Often used as security for the performance of a lease agreement.
The agreement of a bank on behalf of a customer to honor drafts or other demands for payment upon compliance with the conditions of the letter of credit. As they relate to leases, tenants are often required to post letters of credit in lieu of or in addition to cash security deposits as security for the payment of rental obligations to the landlord. EXAMPLE: As a condition to leasing space in Ellipsis Tower, ABC Tenant is required to provide a $100,000 letter of credit as security for lease obligations over the five-year lease term. The lease provides that the letter of credit may be for a one-year term, renewable annually with the issuing bank. During the third-year of the lease term, ABC defaults on the payment of its rental obligations in the amount of $55,000. The Landlord notifies the issuing bank and exercises its right to draw on the letter of credit to cover the $55,000 of lost rental.
An undertaking by a bank that, upon the presentation to it of specified documents, it will pay a specified amount to the presenter. Letters of credit are used traditionally in international transactions to assure that a shipper of goods will be paid for them.
Letter from a bank asking that the holder be allowed to withdraw money from the recipient bank or agency that will be charged back to the first bank.
We provide import and export Letters of Credit in conjunction with other lending services to help companies increase sales or acquire products from overseas. Marine Financing GFC offers loans from $250,000 to $50,000,000 on Marine Financing. Mezzanine Debt We offer exceptional credit, technical and structuring expertise and the ability to create tailored proprietary financing structures for business.
American term for documentary credit. In the United States, the terms D/C can often be confused for documentary collection.
A document issued by the buyer’s bank, through its foreign correspondent bank, establishing a credit against which the seller may draw after complying with specific instructions.
sometimes called documentary credit, a document issued by a bank at the request of an importer, in favour of a supplier/exporter, to finance the importation of goods and services
A letter, usually from a financial institution, guaranteeing a debt incurred by a third party.
or LOC - A Letter of Credit (LOC) is a document, issued by PATHWAYS upon approval, that an employee presents to his/her school as the method of payment for courses.
Designates a contractual commitment given by a bank for the account of, on behalf of and on instructions from a client to render a specific financial performance (e.g. monetary payment)
Out of date term for documentary credit. Avoid using it, as it now has other meanings.
Bank credit facility wherein the bank agrees to lend a specified amount of funds for a limited term. For example, a bank providing an irrevocable direct pay letter of credit both lends its own credit rating to the issue and agrees to pay investors on each interest payment, date. The bank will be reimbursed by the issuer.
In cases where the financial strength of the issuing bank or country is in doubt, the exporter may ask their own bank in Canada to provide an undertaking (i.e. to confirm) that the credit will be paid. The exporter is assured that the letter of credit will be paid by the confirming bank, even if the issuing bank cannot pay, provided the terms and conditions of the credit have been met.
A guaranty of payment, either revocable or irrevocable, in letter form generally supplied by a financial institution to another party. Payment pursuant to a letter of credit will only be made in accordance with the terms set forth in the letter of credit and the submission of proper documentation. The term "standby letter of credit" refers to a guaranty, provided by the debtor's bank or some other financial institution directly to a creditor, pledging satisfaction of the balance due the creditor, should the debtor default on terms of payment.
A document issued by a financial institution on behalf of a buyer stating the amount of credit the buyer has available, and that the institution will honor drafts up to that amount written by the buyer. It gives the buyer the prestige and financial backing of the issuing institution and satisfies the requirements of the seller in completing the transaction. The accepting institution has a prior agreement as to how the buyer will pay for the drafts as they are presented.... read full article
May be revocable or irrevocable - A document, consisting of specific instructions by a buyer of goods, that is issued by a bank to the seller who is authorized to draw a specified sum of money under certain conditions, i.e., the receipt by the bank of certain documents within a given time. An irrevocable L/C provides guarantee by the issuing bank in the event that all terms and conditions are met by the buyer (or drawee). A revocable L/C can be canceled or altered by the drawee after it has been issued by drawee's bank. A confirmed L/C is one issued by a foreign bank which is validated or guaranteed by a U.S. bank for a U.S. exporter in the case of default by the foreign buyer or bank. ... read full article
A letter issued by a bank that guarantees payment providing the conditions of the letter are met
A document, issued by a bank per instructions by a buyer of goods, authorizing the seller to draw a specified sum of money under specified terms, usually the receipt by the bank of certain documents within a given time.
1) A commitment made by an issuing bank or other party at the request of a customer to honor drafts or other demands for payment presented to the bank under the terms of the credit and, if the commitment is a documentary draft, upon presentation of the required documents of title. 2) In reinsurance, a commitment made by a bank to a reinsured which can be drawn upon to cover any of the reinsurer's liabilities to the reinsured under their reinsurance agreement.
Another term used to describe a documentary or standby letter of credit.
The American expression for documentary credit
instrument or document issued by a bank guaranteeing the payment of a customerâ€(tm)s drafts up to a stated amount for a specified period. It substitutes the bankâ€(tm)s credit for the buyerâ€(tm)s and eliminates the sellerâ€(tm)s risk. see also performance letter of credit
a bank issued document that guarantees payment for a pre-specified period and amount
A letter from a bank to correspondent bank stating that the person named can draw on the issuing bank's credit for the amount stated, subject to the conditions stipulated.
a letter issued by a bank that can be presented to another bank to authorize the issue of credit or money.
An arrangement in which a lender agrees to substitute its credit for a borrower's under specified conditions.
A letter that a bank promises to honor under stated conditions when presented to it or another bank. [D02952] PMDT
Abbreviation: L/C A written undertaking by a bank (issuing bank) given to the seller (beneficiary) at the request, and on the instructions of the buyer (applicant) to pay at sight or at a determinable future date up to a stated sum of money, within a prescribed time limit and against stipulated documents.
A written letter that gives authorization to a person or company to draw on a bank or which states that the bank will honour the credit up to the stated amount.
A commitment by a bank or other person, made at the request of a customer, that the issuer will honor drafts or other demands for payment upon full compliance with the conditions specified in the letter of credit. Letters of credit are often used in place of cash deposited with the landlord in satisfying the security deposit provisions of a lease.
An agreement between a bank and a borrower which allows the borrower to use money on the bank's credit.
A document issued by a bank stating its commitment to pay someone a stated amount of money on behalf of a buyer so long as the seller meets very specific terms and conditions. Letters of credit are more formally called documentary letters of credit.
A form of collateral that is issued by the borrowing broker's bank. The L/C states that the bank will guarantee to the lending institution the amount of the letter upon presentation in the case of a broker defaulting under the terms of the loan agreement.
Document issued by a bank to guarantee a payment for an international trade transaction by a customer for a stated amount and for a specific time.
A letter from a bank, on behalf of a buyer, addressed to the seller authorizing him or her to draw drafts for a stipulated amount, under specified terms and to provide eventual payment for drafts within a given time.
A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount.
A promise to lend issued by a bank that agrees to pay the addressee, the "beneficiary," under specified conditions on behalf of a third party, also known as the "account party" (See CreditMetrics Technical Document, page 46). There are different types of letters of credit. A financial letter of credit (also termed a "stand-by letter of credit") is used to assure access to funding without the immediate need for funds and is triggered at the obligor's discretion. A project letter of credit is secured by a specific asset or project income. A trade letter of credit is typically triggered by a non-credit-related (and infrequent) event.
A document issued by a bank guaranteeing the payment of a customer's bank drafts up to a stated amount for a specified time period.
An engagement, pledge or commitment by a bank or person, made at the request of a customer, stating that the issuer will honor drafts or other demands for payment upon full compliance with the conditions specified in the letter of credit.
This is granted by banks only to very creditworthy customers. It states that the bank will guarantee amounts that its customer incurred when purchasing goods. A letter of credit might be necessary for a U.S. company wishing to purchase significant amounts of goods on a buying trip to the Pacific rim. To Top
American term for documentary credit. In the USA, the term D/C can often be confused for documentary collection.
Letters of credit are widely used in the international import and export trade as a method of payment. In an export contract, the exporter may require the foreign importer to open a letter of credit at the importer's local bank (the issuing bank) for the amount of goods. This will state that it is to be negotiable at a bank (the negotiating bank) in the exporter's country in favour of the exporter; often, the exporter (who is called the beneficiary of the credit) will give the name of the negotiating bank. On presentation of the shipping documents (which are listed in the letter of credit) the beneficiary will receive payment from the negotiating bank.
Usually issued by a commercial bank or private corporation which provides the primary or secondary security for the bond issue.
There are many types of letters of credit. The type used to guarantee a contractor's performance is a "standby" letter of credit in which a bank stands ready to pay over the amount of the letter to the owner of the project (obligee) in the event of default. A letter of credit differs significantly from a surety bond and one is not a substitute for the other. The Miller Act which applies to federal construction recognizes this fact and does not permit the use of a letter of credit to guarantee performance of such contracts.
Letter authorizing a person or company to draw on a bank, or stating that the bank will honor their credit up to the stated amount.
Form of financial security provided to the insurer by an approved bank in behalf of the insured.
A financial instrument issued by a bank on the behalf of an individual or corporation by which the bank substitutes its own credit for that of the individual or corporation. In so doing, the bank undertakes a commitment to a designated beneficiary to pay a stated amount and within a stated time frame, provided that the beneficiary complies with the terms and conditions of the letter of credit.
A method of paying for goods, where the buyer establishes credit with a local bank, clearly describing the goods to be purchased. Upon receipt of documentation, the bank is either paid by the buyer or takes title to goods and transfers funds to the seller.
A specific arrangement between a lessee and one of its banks. The bank agrees in the event of a defined event, the lessor can look to the bank to make payment instead of the lessee. This is similar to a security deposit in that it is one way for a lessor to insure that it will be paid under the lease.
Method of payment between buyer and seller. The buyer opens a Letter of Credit in favor of the seller at his local bank by depositing the amount of the purchase price and dictating certain documents which the seller must present in order to obtain a payment. The Letter of Credit will be sent to a bank in the vicinity of the seller and upon presentation of the documents called for, the local bank will release payment.
document authorising payment to the person named, subject to fulfilment of certain specified conditions on the part of the person authorised to receive the money (such as evidence that goods have been shipped).
A document authorising payment of an agreed sum to a named person at the risk of the issuer. If expressed as irrevocable the authority cannot be withdrawn.
An agreement in letter style from one commercial banker to another authorizing payment of a sum to the party specified in the letter upon the existence of the specific conditions stated in the letter of credit (i.e. presentation of shipping documents, warehouse receipts, etc.).
a bank's guarantee to pay drafts drawn by a beneficiary within a stated amount and within a certain time if the specified conditions are met.
A document issued by a bank at the request of the buyer of goods. The LC guarantees payment to the seller given receipt by the bank of certain shipping documents validating the delivery of goods, within a specified time period.
An arrangement, with specified conditions, whereby a bank agrees to substitute its credit for a customer's.
There are a number of types of LCs which are guarantees provided by the bank group to pay off debt or obligations if the borrower cannot.
A financial document issued by a bank at the request of the consignee guaranteeing payment to the shipper for cargo if certain terms and conditions are fulfilled. Normally, the letter of credit contains a brief description of the goods, documents required, a shipping date, and an expiration date after which payment will not longer be made
A document issued by a bank that guarantees the payment, for a specified time period, of a customer's drafts up to a stated amount.
A document issued by a Bank which undertakes to pay a stated sum of money to the addressee subject to certain conditions. These are as guarantees of performance under treaties (e.g. as a replacement for Reserve Deposits). Such LOCs are often "Clean" (not subject to conditions) and "Irrevocable" (not cancellable prior to the stated expiry date). See also RESERVE DEPOSITS.
A conditional undertaking by a bank on behalf of its customer in favor of a beneficiary, under which payment is effected if the beneficiary presents documents in accordance with specific terms and conditions specified in the letter of credit. There are various types of letters of credit, commonly grouped as either a commercial letter of credit or a standby letter of credit. Commercial letters of credit are commonly used in international trade. They assure the seller that the bank will provide payment for goods shipped to the bank's customer, assuming the seller provides any required documentation of the transaction and its shipment of the purchased goods (as stipulated in the letter of credit). A standby letter of credit, used for both domestic and international business transactions, is a contingent (future) obligation of the issuing bank to make payment to the designated beneficiary if the bank's customer fails to perform as called for under the terms of a contract.
is a bank document that may act as an irrevocable guarantee of payment to a beneficiary, meaning if debtor does not meet obligations, bank pays. The letter of credit can also be a source of repayment of the transaction meaning that the exporter will be paid with redemption of the letter of credit. Types of letters of credit: revocable letter of credit, irrevocable letter of credit, standby letter of credit, revolving letter of credit.
Within the context of reinsurance, a banking instrument established on a 'standby' basis to secure recoverables from non-admitted reinsurers to enable the ceding company to reduce the provision for unauthorized reinsurance in its statutory statement
A form of guarantee of payment issued by a bank used to guarantee the payment of interest and repayment of principal on bond issues.
A promise by a financial institution (typically a bank) to pay amounts to a beneficiary. In a securitisation transaction it is the obligation, provided by a bank in exchange of a fee, to stand by with cash to reimburse up to the required credit enhancement amount.
A commitment, usually by a bank on behalf of a client, to pay a beneficiary a stated amount of money under specified conditions.
An agreement or commitment by a bank("issuer") made at the request of a customer ("account party")that the bank will honor drafts or other demands of payment from third parties ("beneficiaries") upon compliance with the conditions specified in the letter of credit.
In compliance with an order received from a client wishing to import goods, a bank will issue a letter of credit stating that it undertakes to pay the exporter for the goods in question, provided that the exporter presents documents complying with the terms and conditions of the letter of credit.
A document issued by a bank at the request of a buyer of goods which authorizes the payment of a specified amount of money to the seller when certain terms are met.
Conditional bank commitment issued on behalf of a customer to pay a third party in accordance with certain terms and conditions. The two primary types are commercial letters of credit and standby letters of credit.
A written statement permitting an individual to draw on a bank, or stating that the bank will honor their credit up to the stated amount.
Payments to a third party by the lender, on the owner's behalf.
An international musiness document that assures the seller that payment will be made by the bank issuing the letter of credit upon fullfillment of the sales agreement.
A form of supplement or, in some cases, direct security for a municipal bond under which a commercial bank or private corporation guarantees payment on the bond under certain specified conditions.
The undertaking by a bank to repay a loan obligation in the event of a default by a subsidiary or a client company.
A document issued by a bank per instructions by a buyer of goods authorizing the seller to draw a specified sum of money under specified terms. Issued as revocable or irrevocable.
A promissory document issued by a bank to a third party to make a payment on behalf of a customer in accordance with specified conditions. Letters of credit are frequently used in international trade to provide a secure way for an exporter to receive payment from an importer via the importer's bank. L/Cs can also be issued by companies, but this is rare.
A document that approves the credit of an individual or corporation and enables it to borrow or get bank funds.
LOC An obligation by a third party to cover losses due to delinquencies and foreclosure. The rating of the third party is commonly required to be, at minimum, equal to the highest rating of the securities. A form of credit enhancement.
An instrument or document issued by a bank guaranteeing the payment of a customer's drafts up to a stated amount for a specified period. It substitutes the bank's credit for the buyer's and eliminates the seller's risk. A Commercial Letter of Credit is normally drawn in favor of a third party, called the beneficiary.
A credit document issued by a lending institution as security for performance of contract obligations.
A letter of credit, often abbreviated as an LC or L/C, (the acronym LOC may also be used but this is more typically used to mean a Line of Credit) and also referred to as a documentary credit, often abbreviated as DC or D/C, documentary letter of credit, or simply as credit (in UCP 600 which is effective as from 1st July 2007) is a document issued mostly by a financial institution which provides an irrevocable payment undertaking to a beneficiary against complying documents as stated in the credit. This means that once the beneficiary or a presenting bank acting on its behalf, makes a presentation to the issuing bank or confirming bank, if any, within the expiry date of the LC, comprising documents complying with the terms and conditions of the LC, the applicable UCP and international standard banking practice, the issuing bank or confirming bank, if any, is obliged to pay irrespective of any instructions from the applicant to the contrary. In other words, the obligation to pay is shifted from the applicant to the LC issuing bank or confirming bank, if any.