We have a policy in place if the customer has an existing line of credit the new letter of credit can be issued and the line amount lowered or blocked for the letter of credit amount.

The letter of credit application states if the Lender finds itself insecure the applicant will deliver or have delivered a demand note in the amount of the letter of credit.

Our existing line of credit does not have the demand verbiage and soemtimes matures before the Letter of Credit.

Should all letters of credit be documented by using a demand note.

Demand or not would be your policy/choice. We also issue Letters of Credit under existing lines of credits.

I would recommend you contact your attorney for their opinion if you have any letters of credit with maturity dates exceeding the maturity date of the note under which the L/C was issued.

I've been searching for info on this. Seems like a good time to bump this thread. Does anyone else care to opine on this topic?

http://www.bankersonline.com/forum/ubbthreads.php?ubb=showflat&Number=1786406&gonew=1#UNREAD

I have been presented with an interesting question. I would like your insight into this topic.

What issues, compliance or legal, do you see with using a personal HELOC to secure a Business Letter of Credit. HELOC customer and Business are one in the same. Can we block the funds on the HELOC?

Go!!!!

See my heloc response under your other post.

Kathleen you are really on top of these forums. I saw your post. Thanks so much. If I can get a few more opinions I should have a good position.

I have to say in all my years of lending I have never seen a business purpose lc booked under a consumer purpose line.

Nor have I ever seen an lc that said if the bank deemed itself insecure the customer had to provide a demand note. For security, we took collateral. Some lcs contain language that converts the lc to a note upon a draw. Generally they will be issued under business lines of credit and blocked.

Good info Kathleen. Thanks

I've always documented a line and reserved a portion (or full amount) of the line to support the issuance of the letter of credit. If the line has a maturity date, the letter of credit must expire before or at maturity of the line. If the letter of credit contained an annual automatic renewal, the expiration of our cancellation option must be prior to maturity of the loan.

I’ve honestly never considered issuing a Letter of Credit backed by a HELOC. My gut instinct is to say no, and require a business line be opened up. I have nothing that says it can’t be done though.

We have recently begun to receive requests from counties/townships for Letters of Credit on residential construction projects. The construction project is consumer purpose. In these cases would a HELOC be acceptable to use? We use Demand Notes behind our business Letters of Credit but really haven't had any ability to cover these consumer requests.

Since my last post before yours (in 2013.. man, that was awhile ago) I have actually issued a standby L/C supported by a HELOC.

I can't really tell you much beyond we did it, it was outstanding for 3 months, and then returned and cancelled.