What is letter of Credit?

Customer Misconceptions About LC

 

1. Do customers often misunderstand what LC means?

Yes, many customers misunderstand the LC as credit directly provided by the dealer. They think the dealer takes machines on credit from the principal (e.g., Sany) and extends the same credit terms to the customer.

2. What is the reality of the LC?

In reality, the LC is a bank-facilitated financial instrument that enables customers to purchase machinery with flexible payment terms. The dealer assists in facilitating the LC between the customer and the bank, ensuring a secure and structured process.

3. Why is it important to clarify this misconception?

Clarifying this misconception helps customers understand that:

• The dealer does not directly provide credit or absorb financial risk.
• The LC ensures transparency and fairness by involving a trusted bank to manage the financing.

What is LC?

 

1. What is the Letter of Credit (LC) offered by Sany?

The LC is a 9-month financing facility provided by Sany through a bank. It allows customers to take immediate delivery of machinery while spreading payments over the financing period.

2. Who is eligible for the 9-month LC? 

The LC is available to contractors, companies, and individuals engaged in construction or related sectors. Eligibility is based on creditworthiness and business profile.

3. Which machinery is eligible for the LC facility? 

Most Sany machinery, including excavators, motor graders, truck-mounted cranes, and batching plants, is eligible. Please confirm specific models with our team.

 

Application Process

 

1. What documents are required to apply for an LC? 

To apply, you will need:

• Business registration documents.
• Financial statements or proof of income.
• Valid ID (for individuals).
• Bank account details.
• Additional documents requested by the bank or Sany.

2. How do I apply for the LC?

Contact Yoebar Private Limited, and we will guide you through the entire process, including document submission and bank coordination.

3. How long does it take to process an LC?

It typically takes 2-3 weeks, depending on the bank and the completeness of your application.

 

Payment Terms and Conditions

 

1. How does the 9-month LC work? 

Once the LC is approved, you can take immediate delivery of the machinery. Payments are made to the bank over a 9-month period according to the agreed schedule.

2. What are the banks’ requirements for the LC?

• Margin Money: Typically 10-25%, depending on the bank.
• Mortgage Assets: Required but reduced if 50% of the loan is pre-approved.
• Approved Loans: Existing approved loans can reduce the mortgage requirement.

3. Are there any upfront costs involved in the LC?

Yes, the upfront margin money ranges from 10-25% of the equipment’s value, based on bank requirements.

4. Is there an interest rate applicable for the LC?

Yes, the LC includes a bank-determined interest rate. Contact us for specific rates.

5. Can I pay off the LC earlier than the 9-month term?

Yes, early repayment is allowed in most cases. Please confirm with the bank if any prepayment charges apply.

6. What happens if I fail to make a payment during the LC period?

Missed payments may lead to penalties, additional interest, or repossession of the equipment. Timely payments are critical to avoid such outcomes.

 

Bank Guarantee (BG) Questions

 

1. Can a Bank Guarantee (BG) be provided for the LC?

Yes, a Bank Guarantee (BG) can be provided as part of the LC arrangement.

2. How does the BG work in this case?

The BG must be established in the name of our bank, guaranteeing the LC amount payable at the time of retirement (i.e., when the LC period ends). This ensures the bank’s security and facilitates the LC process.

3. What are the benefits of using a BG for the LC?

• Enhanced Credibility: Ensures the payment is guaranteed by a trusted financial institution.
• Secure Transactions: Provides confidence to all parties involved.
• Simplified LC Approval: Helps in streamlining the LC process with the bank.

4. Who is responsible for establishing the BG?

The customer’s bank is responsible for issuing the BG in favor of our bank. Our team will coordinate with you and the banks involved to facilitate the process.

5. Is there any additional cost for the BG?

The issuing bank may charge fees for establishing the BG. Please check with your bank for details on the applicable charges.

 

Benefits of LC

 

1. What are the benefits of using the LC facility? The LC provides several advantages:

• Immediate Machinery Access: Start your project without delays.
• Flexible Payment Terms: Spread payments over 9 months for better cash flow management.
• Reduced Mortgage Requirements: Approved loans (up to 50%) reduce additional mortgage needs.
• Lower Upfront Costs: Margin money as low as 10-25%.
• Support for Large Projects: Perfect for high-value machinery acquisitions.
• Build Creditworthiness: Successful LC payments enhance your credit profile.
• Trusted Banking Partners: Secure and transparent transactions facilitated by reliable banks.

 

Additional Questions

 

1. Can the LC period be extended beyond 9 months?

Extensions are considered on a case-by-case basis, subject to approval by the bank and Sany.

2. Can the LC be used for spare parts or services?

No, the LC is exclusively for machinery purchases.

3. Which banks support this LC facility?

We work with leading banks in Bhutan. Details will be provided during the application process.

4. Who do I contact for LC assistance or inquiries?

Contact Yoebar Private Limited for guidance. Our team will assist you with applications, eligibility, and bank coordination.