Replies to post #33801 on e.Digital Corporation (fka EDIG)

[chipperca]

I could be wrong, but there is a difference between a Line of Credit, and a Letter of Credit. A line of credit allows you to borrow money at any time. A letter of Credit only takes effect when you fail to pay vendors.

[Cassandra]

Trend: A "line" of credit is not at all the same as a "letter" of credit. There is a huge difference.

A line of credit is an arrangement in which a bank or vendor extends a specified amount of credit (money) to a specified borrower for a specified time period. It is a loan that may be drawn upon as needed or taken all at one. It can also be replenished and drawn down again until it is finally due to be paid. A consumer version might be a line of credit on a house.

A letter of credit is a document issued by a bank or vendor which guarantees the payment of another parties drafts or debts for a specified period and up to a specified amount. A letter of credit is simply a guarantee in case of default of the party who owes the money. The party who owes the debt receives no money under the letter of credit.

In this case, because e.Digital has very bad credit and no cash, DigitalWay will not agree to manufacture the Ecplise without a letter of credit from a creditworthy source. Therefore Fujitsu-Ten had provided the letter of credit to guarantee to pay DW if e.Digital does not.

Lines of credit are given only to the credit-worthy. Letters of credit are often required of those who bad or insufficient credit.

I hope this helps you understand the distinction.