Give your supplier the assurance to ship — without locking up your cash.
Trade and import support backed by the strength of the transaction, so you can secure goods from suppliers at home and overseas without tying up working capital in a cash deposit.
What is letter of credit financing?
Letter of credit financing provides a guarantee of payment to a supplier, issued on the strength of the underlying transaction so you can secure goods — often from overseas — without tying up cash in a deposit. The letter of credit assures the supplier they’ll be paid once the agreed shipping and documentation terms are met, which is frequently what a supplier needs before committing to produce or ship.
For growing importers and trading companies, the obstacle usually isn’t the deal itself — it’s that a bank wants strong standalone credit and a large cash deposit before issuing the instrument. By looking at the financial stability of your suppliers and customers, not just your own credit file, asset-based letter of credit financing opens a path that conventional channels often close.
How letter of credit financing works
The structure turns a confirmed order into the assurance your supplier needs. It hinges on a real transaction between creditworthy parties, and the goods and documents move the deal forward step by step.
1. The order and the supplier
You hold a customer order and have a supplier — often overseas — that needs payment assurance before producing or releasing the goods.
2. The transaction is reviewed
We review the order’s authenticity and value and assess the reliability of your supplier and the creditworthiness of your customer.
3. The letter of credit is issued
A letter of credit is issued in the supplier’s favor, guaranteeing payment once the agreed shipping and documentation terms are met.
4. Shipment settles it
Once goods ship and your customer is invoiced, that receivable collateralizes the transaction; when payment arrives, costs are settled and the balance is yours.
Why importers and traders use it
Source globally
Access competitively priced goods from emerging and overseas markets that require payment assurance before they ship.
Preserve working capital
Secure the order without locking up cash in a deposit, so capital stays available for the rest of the business.
Negotiate better terms
A credible payment guarantee can strengthen your hand in negotiating supplier pricing and credit terms.
Build trade credibility
Reliable settlement builds the relationships and reputation that make the next international deal easier.
The order is real. Let the transaction carry the assurance.
Tell us about your order and your supplier, and we’ll structure the trade financing around the deal.
Pairing it with the rest of your trade cycle
A letter of credit gets goods moving, but it doesn’t accelerate the cash coming in once you’ve shipped and invoiced. That’s why it’s often combined with receivables financing or factoring. Where it lowers risk for the lender, collateralizing the structure with your receivables or inventory can also help reduce cost. And because letter of credit financing sits right beside purchase order financing in the trade cycle, many importers use the two together — the PO funds supplier costs while the letter of credit provides the assurance to ship.
Who is letter of credit financing for?
It fits small and mid-sized importers, distributors, and trading companies expanding into global sourcing, whose suppliers — especially overseas — want assurance before they ship, and who would rather not lock up cash in a bank deposit to get it. The strength of the transaction parties, not just your own credit, opens the door.
Letter of credit financing is one part of our wider asset-based lending family, alongside purchase order, receivables, and inventory financing; the full menu lives on our solutions hub. Capital Source has funded businesses since 2015, manages over $500 million in active funding programs, and lends in 46 states (we do not currently fund businesses in California, Connecticut, Utah, or Virginia). Curious how we evaluate a deal? Read about how we operate.
Frequently asked questions
How is letter of credit financing different from getting a letter of credit from my bank?
A bank typically requires strong standalone credit and a sizable cash deposit before issuing a letter of credit. Asset-based letter of credit financing looks at the strength of the transaction — your supplier’s reliability and your customer’s creditworthiness — which can open a path when conventional channels are closed.
Can I use letter of credit financing for overseas suppliers?
Yes. Supporting trade with overseas suppliers who need payment assurance before they ship is one of the most common uses, helping you source competitively priced goods from emerging and international markets.
Does a letter of credit speed up the cash coming in?
Not by itself. A letter of credit assures your supplier they’ll be paid; it doesn’t accelerate your customer’s payment. That’s why it’s often paired with receivables financing or factoring to address both sides of the trade cycle.
Can collateral lower the cost of letter of credit financing?
It can. Where collateralizing the structure with receivables or inventory reduces risk for the lender, it may also reduce cost. The specifics are determined in underwriting based on the transaction.
Expand into global sourcing without draining your cash.
Tell us where your business is headed and we’ll structure capital around the trade that gets it there.