How to Raise Trade Finance and Secure a Letter of Credit in 2025 Without 100% Cash Collateral

Important. For corporate importers, exporters and commodity traders. Not investment advice. Prepared September 2025.

How to Raise Trade Finance and Secure a Letter of Credit in 2025 Without 100 % Cash Collateral

1. Know What Banks Expect in 2025

Banks remain the main issuers of commercial and standby letters of credit (LCs/SBLCs). Before they commit, expect checks on:

  • KYC/AML: full ownership chart, clean history, and sanctions screening.
  • Financial strength: audited accounts, cash-flow coverage, leverage and debt-service ratios.
  • Collateral: cash margins are common but can be replaced with high-quality collateral or guarantees.
  • Documents: purchase orders, invoices, shipping contracts and inspection certificates.

Meeting these standards early shortens approval time and can lower cash requirements.

2. Cut or Replace Cash Collateral

Borrowing Base or Inventory Lines

Use eligible stock and receivables as collateral. Banks advance 60–80 % of value, reducing the LC margin you must post.

Receivables Purchase

Assign insured or confirmed export receivables. This improves coverage and can almost eliminate cash holdbacks.

Standby LC or APG Support

A strong counterparty can issue a standby LC or advance payment guarantee to backstop the operating LC.

Parent or Cross-Corporate Guarantees

Well-capitalized affiliates can pledge guarantees to lower the required cash margin.

3. Look Beyond Relationship Banks

When traditional credit lines are too tight or slow, consider alternative capital sources:

  • Specialty trade-finance funds – provide LC issuance, confirmation and discounting with flexible collateral rules.
  • Structured commodity desks – arrange borrowing-base RCFs, repo and warehouse-receipt finance.
  • Insurance-wrapped receivables finance – credit-insurance programs to enhance LC limits.
  • UPAS LCs – “usance payable at sight,” where the confirming bank pays the seller at sight and you repay at maturity.

These options often rely on operational controls (title transfer, inspections, cash waterfalls) instead of 100 % cash cover.

4. Build a Lender-Ready File

Whether approaching a global bank or a private credit fund, prepare a complete package:

  • Signed sales or purchase contracts with Incoterms and payment schedules.
  • Warehouse receipts or inspection reports for pledged stock.
  • Audited financials and current management accounts.
  • Corporate KYC documents and ownership proof.

Clean documentation can cut execution time from months to weeks and lower your cost of capital.

5. Execute the LC Step by Step

  1. Negotiate LC terms with your supplier or buyer (amount, expiry, documents).
  2. Submit the LC application to your bank or arranger.
  3. Undergo credit and compliance checks; pledge collateral or alternative security.
  4. Issuing bank releases the LC—confirmed if required—to the beneficiary.

Well-prepared applicants typically move from application to issuance in two to six weeks.

Need Expert Help Securing Trade Finance?

FG Capital Advisors arranges borrowing-base lines, third-party LC issuance, SBLC-backed prepayments and other structures so you don’t have to lock up 100 % cash. Book a call to discuss your trade cycle and get a lender-ready plan.

Book a Consultation Call

Disclaimer. All facilities are subject to underwriting, collateral verification, and KYC/AML. FG Capital Advisors does not guarantee funding. Third-party costs and bank fees are separate from our fees.