Letter of Credit

A letter of credit is a letter from a bank or other financial institution which guarantees an investor’s payments to a third party. If the investor does not make its payments pursuant to its agreement with the third party, the party issuing the letter of credit will be required to make the payment of fund any shortfall.

For example, imagine Company ABC is interested in purchasing 1,000 widgets from Supplier XYZ for $1 million. Given Company ABC’s weak credit rating, Supplier XYZ is worried that Company ABC will not be able to pay in full within 60 days. In order to ensure Supplier XYZ that it will make good on it payment, Company ABC gets a letter of credit from the bank stating that it will pay any outstanding liability within the set time period, with the bank acting as insurance in the event that it can’t meet its financial obligations.

 

Learn Ways To Help Build Long-Term Real Estate Wealth

Get Tips For Managing Real Estate Wealth
Download eBook

 


Get Tips For Managing Real Estate Wealth

Learn Ways To Help Build Long-Term Real Estate Wealth

Learn new ways to use real estate to pursue your wealth goals.

By providing your email and phone number, you are opting to receive communications from Realized. If you receive a text message and choose to stop receiving further messages, reply STOP to immediately unsubscribe. Msg & Data rates may apply. To manage receiving emails from Realized visit the Manage Preferences link in any email received.