Packing Loan

A packing loan is a short-term special-purpose loan provided by a bank in the exporting country to an exporter for organizing the production and procurement of export goods. Its core lies in the fact that the exporter has already received a letter of credit (L/C) issued from abroad but lacks funds for preparing goods, so it uses the original L/C as repayment guarantee to apply for a loan from the bank. Typical usage scenarios are when an exporter, after receiving an L/C, needs funds before shipment to purchase raw materials, pay processing fees, or organize supply. Notes: 1) The loan amount generally does not exceed 80%-90% of the L/C amount; 2) The original L/C must be submitted, and the L/C must be acceptable to the bank; 3) The loan term usually does not exceed the validity period of the L/C; 4) If the exporter fails to deliver goods on time or the L/C expires, the bank has the right of recourse. Difference from export negotiation: packing loans occur before shipment (pre-shipment financing), while export negotiation occurs after shipment (post-shipment financing). Difference from a red clause L/C: a red clause L/C is when the importer proactively requests the issuing bank to include an advance payment clause in the L/C, whereas a packing loan is an independent loan that the exporter applies for from the bank on its own.