In a competitive market, keeping cash flow steady is key for business growth and stability. To manage working capital needs, trade risks, and liquidity, companies often rely on financial tools. Two common options are Letter of Credit (LC) discounting and traditional financing methods such as bank loans, overdrafts, or working capital lines.

But which option is better for your business? Let’s find out.

What is LC Discounting?

LC (Letter of Credit) discounting is a short-term trade finance solution that allows exporters to get funds immediately against their export bills backed by an LC. Instead of waiting for the buyer to pay at maturity, the exporter’s bank or financial institution (like SBI Factors) provides upfront liquidity by discounting the bill.

Key Features of LC Discounting:

Immediate cash flow against export bills
Backed by buyer’s bank guarantee (reduced risk of default)
Supports smooth working capital management
Ideal for businesses engaged in domestic or international trade

What is Traditional Financing?

Traditional financing refers to conventional methods like bank loans, overdraft facilities, working capital limits, or trade credit. These financing options are not always directly linked to a trade transaction and are often based on the borrower’s creditworthiness, collateral, and banking history.

Key Features of Traditional Financing:

Access to loans or credit lines for business needs
May require collateral or strong credit rating
Flexible usage (not limited to trade finance)
Longer approval timelines compared to LC discounting

LC Discounting vs. Traditional Financing: Key Differences

Aspect	LC Discounting	Traditional Financing
Basis	Linked to a specific trade transaction backed by LC	Based on overall business credit profile
Risk	Lower risk – backed by buyer’s bank LC	Higher risk – depends on borrower’s repayment ability
Cash Flow	Immediate liquidity against bills	Depends on loan approval and disbursement process
Collateral	Usually no collateral required (LC acts as security)	Collateral often required
Processing Time	Faster, transaction-based	Slower, involves multiple approvals
Ideal For	Exporters, importers, trade businesses	Companies seeking general-purpose funding

Advantages of LC Discounting

Quick access to funds – avoids payment delays from buyers
Risk mitigation – secured by the issuing bank of the buyer
Better working capital management – ensures smooth operations
No additional collateral required – LC itself is the guarantee

Advantages of Traditional Financing

Wider usage – funds can be used for any business purpose
Higher credit availability – depending on eligibility and collateral
Long-term financing options – not restricted to short-term trade

Which Option Should Your Business Choose?

Choose LC Discounting if:

You are into exports/imports or trade where buyer payments take time
You need quick access to cash without waiting for maturity
You want to minimize credit risk

Choose Traditional Financing if:

You need funds for broader business purposes (expansion, assets, operations)
You have strong banking relations and collateral to pledge
You require long-term financing solutions

How SBI Factors Can Help

As a trusted name in trade finance and working capital solutions, SBI Factors. offers LC discounting services designed to ensure seamless liquidity for businesses. With decades of expertise, transparent processes, and strong backing from the State Bank Group, SBI Factors helps companies manage cash flow efficiently, reduce credit risks, and grow sustainably.

Final Thoughts

Both LC discounting and traditional financing have their place in business finance. The right choice depends on your industry, transaction needs, and financial goals. For trade-focused businesses looking for faster liquidity with lower risk, LC discounting is often the smarter choice. Partnering with a trusted institution like SBI Factors ensures reliability, security, and growth-oriented financial support.

Discounting of LC vs. Traditional Financing | Best Option for Businesses