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Refinancing is done through several methods such as:
1- Transferring the credit to a second beneficiary (in case the L/C is transferable).
2- Issuing a Back to Back L/C to the source of goods in subject.
3- Issuing a separate new L/C with terms as close as possible the master L/C.
Refinancing highly depends on the credit rating of the entity as a whole, before the Bank considers giving credit limits to a company, there's a series of procedures that vary from one country to another depending on level of reservation.
In general there are some common practices that a bank goes through to consider financing or not based on the score of the applicant:
1- Evaluation of the Financial Statements (Balance sheet) for the last 3 or 5 years.
2- Evaluate the cash flow v.s. budget.
3- Evaluate the registration status & compliance to the local laws & regulations.
4- Explore the possibility of having a collateral (real estate, bonds, etc.).
Based on the score of the company, the Bank can determine the percentage of cash collateral that a company should deposit prior to issuing the L/C.
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