Bank Confirmation Letter

What is a Bank Confirmation Letter?

A Bank Confirmation Letter (BCL) is a letter that comes from a financial institution or a bank and confirms the existence of a credit issue or loan that the borrower has availed.

The letter vouches officially for the fact that the borrower is eligible to borrow the said amount for specific purposes.

How a Bank Confirmation Letter Works?

The purpose of a BCL letter is to assure a third-party, majorly a seller, that the borrower has sufficient financial resources to complete their transaction. Sometimes, this confirmation letter is also known as a comfort letter, and may not guarantee payment, but only assures so that the borrower can get funds.

Typically, bank confirmation letters require the bank representative’s signature, who is authorized to issue this communication. Since this letter is issued for a specific project or a transaction, it cannot be transferred to any other transaction.

In case a borrower decides to get another deal, he would have to get a new confirmation letter. For instance, if you are about to purchase a car. However, after getting the letter issued, you change the model, you will have to get a new BCL issued, and the existing one will be rendered useless.

Uses of a Bank Confirmation Letter

Commonly, bank confirmation letters are prepared for a business customer as the bank vouches for the existence of a line of credit. Often, the letter serves an assurance to the seller. These letters could also be issued for such companies that are about to enter a joint venture project with any other company.

While the letter doesn’t guarantee the provision of funds or payments, it does offer an assurance of the probability of the company getting payment from the bank. The most common use of a confirmation letter is during the purchase of Land or a home.

In such scenarios, the letter offers confirmation to a Realtor or seller that the customer of the bank is approved for a mortgage up to a specific amount of purchase. The letter doesn’t provide a commitment to purchase the property. It is only a reassurance that the customer has enough funds to complete the purchase.