Letter-of-Credit: An Alternative to a Gap Loan Commitment

As an option to a space loan dedication, construction loan providers will accept a letter-of-credit usually for the difference between the 2 loan amounts. Once more, the caveat that is same here regarding previous approval of this proposed letter-of-credit author by the construction loan provider.

A letter-of-credit is a consignment often granted with a commercial bank saying that the called celebration – in this situation, the construction lender – may phone upon the lender to finance all or the main line of credit stated into the letter-of-credit at that time period that the letter-of-credit is in impact.

Example: If construction loan provider Scenic Check nationwide Bank held a letter-of-credit for $400,000 through the Hoard nationwide Bank, and when it had been legitimate through the readiness of this Barracks home construction loan, then Scenic Check National Bank might use the letter-of-credit funds to cover their balance off staying following the Payno Claims lifestyle Insurance business funded their base quantity.

The construction lender may elect...