Letter of credit

From The Jolly Contrarian
Jump to navigation Jump to search
A word about credit risk mitigation

Comments? Questions? Suggestions? Requests? Insults? We’d love to 📧 hear from you.
Sign up for our newsletter.

An old fashioned form of credit support. A bank writes an unconditional letter promising to pay a (usually large) sum on money on demand and without argument to a third party on behalf of a client. This gets small companies a bit of breathing space with trade creditors. Banks charge through the nose for them: they are a form of committed funding.

Lots of formal rules and legal form-obeisance.

Often talked about, seldom seen, as credit support for a 2010 GMSLA

See also