LC Financing

Letters of Credit (Letter of Credit) are a powerful tool of international trade. There are two types of Letters of Credits the Documentary Letter of Credit used in trade finance and the Standby Letter of Credit (SB Letter of Credit) which in essence is a bank guaranty. US banks issue SB Letters of Credit because they cannot issue bank guarantees due to regulatory reasons. For the issuer an SB Letter of Credit is a very dangerous instrument because the beneficiary can draw on the SB Letter of Credit just by making a demand for payment.