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What is Obligo’s Letter Of Credit Program?
What is Obligo’s Letter Of Credit Program?
Keegan St. Onge-May avatar
Written by Keegan St. Onge-May
Updated over a week ago

In 2022, Obligo partnered with Wells Fargo Bank, N.A. to issue letters of credit to landlords and property managers in support of our Billing Authorization product. A letter of credit is a document issued by a bank that guarantees payment to be made to a beneficiary under specified conditions.

By providing for a direct line to a Wells Fargo instrument, these letters protect landlords/property managers from the risk of renter and/or Obligo’s non-payment of charges. The letter of credit program is a key part of Obligo’s business and distinguishes our Billing Authorization product from all other security deposit alternatives on the market.

Letters Of Credit & Our Billing Authorization Service

Obligo pays landlords/property managers for charges as an advance approximately five days after their submission and seeks to collect charge amounts from renters using one or more of the pre-authorized payment methods on file. This advance helps landlords and property managers with their cash flow at the beginning of the collections process. The letter of credit model provides an additional layer of security to ensure that landlords/property managers receive payment for charges submitted to their renters’ Billing Authorizations in the event of Obligo’s non-payment of charges.

How Does The Letter Of Credit Model Work?

Landlords & Property Managers are Added as Beneficiaries to Letters of Credit.

Following the quarter in which a landlord/property manager’s first renter signs up for Obligo’s security deposit alternative (a “Billing Authorization”), Obligo adds the landlord/property manager to a new or existing aggregate letter of credit as a beneficiary. Upon request, Obligo will provide the landlord/property manager with a copy of the letter of credit, with all information not pertaining to the requesting landlord/property manager redacted. This protects against the disclosure of any sensitive information about the other aggregated landlords/property managers’ business with Obligo.

Obligo Reserves Funds in the Letters of Credit for Each Beneficiary.

Obligo is committed to ensuring that the letters of credit safeguard the interests of its partners. To this end, aggregate letters identify the specific funds allocated for each landlord/property manager beneficiary so that, if necessary, landlords/property managers will only be able to collect what has been reserved for their account.

The allocated funds for each account are equal to 100% of the projected renter non-payment of charges for the lifetime of the account’s total active Billing Authorizations, plus an additional operational balance. Obligo determines how much should be reserved in the letter of credit using the property manager/landlord’s portfolio assessment, which is filled out before signup and contains self-reported historical charge rates and other important information indicative of risk. Obligo does not accept property managers/landlords that, in its own discretion, exceed relevant risk benchmarks. If, after joining Obligo, the resulting risk is greater than projected, Obligo reserves the right to stop allowing new renters to sign up for Billing Authorizations until performance improves.

Obligo amends each letter quarterly to reflect changes to the value of each account’s total Billing Authorizations and risk profile. The rights and obligations of Obligo and the landlord/property manager regarding the letter of credit program are detailed in every landlord agreement. Obligo manages all administrative activity related to the program.

Questions? Contact us or reach out directly to your Customer Success Manager.

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