A Letter of Credit (LC) is a mode of making payments for trade transactions. An Letter of Credit is a highly popular payment mode because it allows an importer or buyer to make secure payments to the exporter or seller.
Back to Back Letter of Credit, one Irrevocable Letter of Credit facilitates the seller to obtain another Letter of Credit. To obtain the Back to Back Letter of Credit the permission of the Buyer or the applicant of the first Letter of Credit is not required. Back to Back Letter of Credit is generally used by the middleman or agencies to hide the identity of the real suppliers or manufacturers. The seller can utilize this Back to back Letter of Credit as a security for his bank, to issue a back to back Letter of Credit in “favour of his suppliers” in order to get a very competitive rate for his purchases and increase his profit margin in the process. Thus this can very well be used by the seller to raise quick funds and complete his orders in the scheduled time.
Such transactions originate when a seller receives a letter of credit covering goods which must be obtained from a third party who in turn requires a letter of credit. The “second” issuing bank looks to the first issuing bank for reimbursement after paying under the second letter of credit.
Just4uloan help you with the list of the banks and the contact details, which provides Back to Back Letter of Credit.
Back to Back : Documents
The borrower and/or the guarantors have to provide the following documents to the banks or the lending institutions while submitting Back to Back Letter of Credit Application. Certain documents may be demanded by the bank or the lending institutions in post sanction phase or on periodical basis.
Address Proof : Latest Electricity/Telephone Bill or Receipt of Maintenance Charges or Valid Passport or Voter’s Identity Card or Purchase/Lease Deed/ Leave & License Agreement of Residence or Office Premises.
Identity Proof : Valid Passport, PAN Card, Voter’s Card, Any other photo identification issued by Government Agencies.
Business Proof : VAT/CST Registration No. or MIDC Agreement or SSI Permanent Registration Certificate or Warehouse Receipts or Shop & Establishment Act Certificate or Copy of Lease Agreement along with the latest Rent paid Receipt.
Business Profile on Company’s Letterhead.
Partnership deed in case of partnership firms.
Certificate of incorporation, Date of Commencement of Business and Memorandum of Title Deeds, Form 32 in for Addition or Deletion of Directors in case of companies.
Last three years Trading, Profit & Loss A/c. and Balance Sheets (duly signed by a Chartered Accountant wherever applicable).
Last one years’ Bank statement of the Firm.
If existing loan, then sanctioning letter and repayment schedule of the same.
Firm/Company’s PAN Cards.
Individual Income Tax Returns of the Individual/Partners/Directors for last three years.
Last one years’ Bank statement of Individuals, Partners, Directors .
SEBI formalities in case of listed companies.
Share Holding pattern of Directors duly certified by a Chartered Accountant.
List of the Existing Directors of the company from the Registrar of the Companies.
Back to Back : Process
The following are the sequence of steps taken by the banks on receipt of completed application forms.
Application form is accepted and acknowledged.
Personal interview /discussions is held with the customers by the bank’s officials.
Bank's Field Investigation team visits the business place/work place of the applicant.
(All the documents submitted are verified by the bank with the originals so as to ensure the authenticity of the same.)
Bank verifies the track record of the applicant with the common information sharing bureau (CIBIL).
In case of fresh projects the bank analyses the back ground of the applicant/firm/company and the Technical feasibility/financial viability of the project based on various parameters and also the existing market conditions.
Depending on the size of the project the file is put up for sanction to the appropriate level of authority.
SANCTION AND DISBURSEMENT :
On approval/sanction, the sanction letter, is issued specifying the terms and conditions for the disbursement of the loan. The acceptance to the terms of sanction is taken From the Applicant.
The processing charges as specified by the bank have to be paid to proceed further with the disbursement procedure.
The documentation procedure takes place viz.Legal opinion of various property documents and also the valuation reports.(Original Documents to title of the immovable assets are to be submitted)
All the necessary documents as specified by the legal dept., according to the terms of sanction of the loan of the bank are executed.
Disbursement of the loan takes place after the Legal Dept. Certifies the Correctness of execution documents.
