A bank confirmation letter (BCL) is a letter from a financial institution validating that a borrower has an existing loan or line of credit. A BCL verifies that the individual or company has the means to borrow a specific amount of money for a specific purpose.
The letter is not a guarantee of payment; rather, it shows proof that the borrower has the resources available to complete a financial transaction. If you’re looking to finance a significant purchase in the future, you may want to ask your bank for a bank confirmation letter. Here’s what you need to know before requesting a letter from your bank.
Definition and Examples of a Bank Confirmation Letter
A bank confirmation letter, which is also called a bank comfort letter, is a letter confirming access to a loan or line of credit. If you’re looking to finance a large purchase, such as a home or business transaction, you may need a BCL to complete the transaction. A BCL may also verify you have access to a loan or line of credit.
- Acronym: BCL
- Alternate name: Comfort letter
The confirmation letter isn’t a guarantee of payment but shows a third-party seller that you have the financial resources available to complete the transaction. The exact requirements for what is included in a bank confirmation letter will vary depending on the country you live in.
Regardless of your location, the letter typically must contain the signature of a bank representative who is permitted to authorize this type of transaction.
Since a bank confirmation letter usually relates to a specific project or purchase, you cannot transfer it to another financial transaction. If you decide to pursue another deal, you’ll likely need to request a new bank confirmation letter.
For instance, bank confirmation letters are often used by borrowers looking to purchase a home. When a borrower settles on a home they want to buy, the bank confirmation letter is meant for that specific home. If the borrower changes their mind and decides they want to purchase a different house, they’ll need to request a new confirmation letter from the bank.
How a Bank Confirmation Letter Works
Bank confirmation letters are often issued to business owners looking to purchase goods. Confirmation letters can also be used when a business is looking to enter into a joint business deal with another company.
The letter doesn’t guarantee payment like a letter of credit does, but it shows that the business has the ability to pay.
Reassurance from the bank via a BCL increases the likelihood that the other party will complete the financial transaction.
Bank confirmation letters may also be used by borrowers to finance large consumer purchases, such as buying a home or a piece of property. Once the borrower has done their research and knows what home or plot of land they want to purchase, they can ask their financial institution for a bank confirmation letter.
The bank confirmation letter shows the seller that the borrower is able to borrow up to a certain amount of money for a mortgage. It’s not a guarantee of payment or even a promise to buy the property.
Unlike a proof of funds letter, a bank confirmation letter does not verify the balance of funds on deposit in the buyer’s bank account. The bank confirmation letter simply shows that the borrower has gone through the underwriting process and has been approved to borrow a specific amount of money.
This guarantee is important because it helps the seller avoid wasting their time on borrowers who don’t have the ability to take on the financial responsibility of a mortgage.
Do You Need a Bank Confirmation Letter?
If you’re planning to borrow money to finance a large purchase, whether as a homebuyer or a business owner, you may want to consider asking your bank for a bank confirmation letter to ensure the financial transaction is completed. The seller may appreciate the reassurance that you have the means and are approved to borrow money to complete the transaction.
- A bank confirmation letter (BCL), also known as a comfort letter, is a letter verifying a borrower has access to a loan or line of credit.
- The letter isn’t a guarantee of payment but shows that a borrower has the financial resources available to complete a transaction.
- The confirmation letter must be signed by a bank representative who is authorized to issue this type of correspondence.
- Bank confirmation letters are commonly used in large purchases, such as when a borrower is attempting to buy a home or a piece of property.
- A bank confirmation letter is also issued to business owners looking to purchase goods or enter into a business deal with another company.