Lore vs. Reality: Why Sourcing A Letter of Credit Provider is Obsolete
Only Banks Can Offer Letters Of Credit — Right?
Until recently, it was popular trend for companies to try and ‘’buy or lease’’ a letter of credit from third parties.
Mostly because they were ill-advised about how to actually obtain letters of credit.
In this article we explain in depth why letters of credit are not mail-order instruments:
Those third parties were mostly NBFCs (Non-Banking Financial Companies).
The trend was very popular for almost a decade, until enough ‘’buyers/lessors’’ got burnt financially and accepted the reality, which is that all of those NBFC’s letters of credits were nothing but a SWIFT message backed by thin air.
Misinformation spreads like wildfire.
Very unfortunate, typical upfront fee scam that could have been avoided, simply by hiring a corporate finance consultant or talking to a banker.
Why No One Should Still Seek A Letter Of Credit Provider In 2022
Letters of credits are not mail order instruments you can simply purchase or lease.
Yes, it’s possible to purchase debt from a financial institution, but this is not the same as purchasing or leasing an actual letter of credit. Fraudsters like to use this type of nuance to confuse unsuspecting victims.
Before obtaining a letter of credit your business will require collateral.
Especially if you’re looking for a standby letter of credit.
If your business does not have enough collateral, you will have to raise funding.
The correct way to raise funding if you want to finance your trading operations, or projects is by either borrowing capital or selling equity.
Obviously both the bank and investors will have certain criteria, which your business has to meet before you secure funding.
After funding has been secured, you can now walk into any commercial bank, deposit your collateral, submit your transaction documents and request a letter of credit. It’s as simple as that.
The letter of credit will be issued to the beneficiary of your choice if the bank agrees to work with you.
