A “letter of credit” is basically a open dated, signed, cheque payable - in this case - to the CAA. It is a written guarantee from the bank to the CAA that for whatever reason the CAA calls for the funds from the bank up to the specified amount the bank will issue a cheque to them without question. I used to do a fair amount of these when I was still working for the Banks.
The bank will need cash security – a GIC, stocks, bonds, etc – or real estate. See if the BME can secure the LC by taking a charge against your home.
A line of credit may be cheaper but have a good look at it. The only way to use a line of credit for a letter of credit is to use it as cash security or to off set it. If you use it as cash security then you are paying interest on it just like you have spent the money.
FYI: a letter of credit is a PITA for a bank to deal with for an individual as the banking system is not really geared for this type of product. It is usually used only for commercial borrowers
Hope this helps
Kevan
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