Letter of Credit (LC) Cost & Usance Interest Calculator
What are the total issuance commission, usance credit interest, and cash margin deposit requirements for opening a Letter of Credit?
Financial Inputs
Total invoice purchase value covered by the documentary credit.
Usance gives deferred credit; Sight requires immediate debit on presentation.
Deferred payment credit period extended by supplier under LC.
Months allowed for supplier to manufacture and ship goods.
Annual commission charged by issuing bank.
Supplier credit discounting interest rate during usance tenor.
FD cash collateral required by bank to issue the LC.
Interbank electronic transmission and advising fees.
Total Direct LC Issuance Fees
For an USANCE Letter of Credit of ₹200 Lakh (3 months validity + 90 days usance):
Mandatory Cash Margin (FD Lien)
30,00,000
Issuing Bank Commission
75,000
Usance Credit Interest
4,68,493
Key Financial Takeaways
- For an USANCE Letter of Credit of ₹200 Lakh (3 months validity + 90 days usance):
- Total issuance charges amount to ₹545.99 Thousand (Opening Commission: ₹75K, Usance Interest: ₹468.49K).
- The issuing bank will place a 15% cash margin lien (Fixed Deposit) of ₹30 Lakh until the LC is honored and retired.
Frequently Asked Questions
What is the key advantage of an Inland Letter of Credit for MSMEs?
An Inland LC enables an MSME to procure raw materials from large corporates or PSU suppliers without paying cash upfront. The supplier accepts the LC as a bank guarantee of payment, granting 90–180 days credit.
Does the cash margin earn interest while pledged to the bank?
Yes. The cash margin is placed as a Fixed Deposit (FD) in the borrower’s name and earns standard commercial bank FD interest (typically 6.5% to 7.25% p.a.) with the bank holding a lien on the deposit.
Calculators on this platform provide indicative mathematical estimations based on industry-standard financial appraisal models (including Tandon Committee Method II, Nayak Turnover Method, and standard compound amortisation).
They do not constitute a formal facility sanction, credit commitment, or legal advisory from SME PAISA or any partner banking/NBFC institution. Final terms, interest margins, security stipulations, and credit sanctions remain strictly subject to formal credit appraisal, audited balance sheet verification, CMA Data assessment, and risk committee approval by institutional lenders.
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