What Is a Bank Confirmation Letter (BCL)?
A bank confirmation letter (BCL) is a letter from a bank or financial institution confirming the existence of a loan or a line of credit that has been extended to a borrower. The letter officially vouches for the fact that the borrower—typically an individual, company, or organization—is eligible to borrow a specified amount of funds for a specified purpose.
A bank confirmation letter (BCL) validates that a bank has a line of credit in place with one of its customers.
Bank confirmation letters are typically issued to business customers vouching for their creditworthiness.
Individuals may request a BCL during the purchase of a home or land in order to secure a mortgage or establish creditworthiness with the seller.
How a Bank Confirmation Letter (BCL) Works
A bank confirmation letter's purpose is to assure a third party, generally a seller, that the borrower has access to sufficient financial resources to complete a transaction, such as the purchase of goods. The confirmation letter—sometimes known as a comfort letter—is not a guarantee of payment, but only an assurance of the borrower's financial resources to make payment.
Bank confirmation letters typically require the signature of representatives of the bank or the financial institution who are authorized to issue such correspondence.
Since a letter of confirmation is issued in regard to a particular transaction or project, it's not transferable to a different transaction or project. If the bank's customer decides to enter into a different deal or purchase, the customer usually is required to obtain a new letter of confirmation. For example, a prospective home buyer decides to buy a different home than the one specified in the bank confirmation letter; a new BCL would be needed.
Regulations vary from country to country in terms of whether and to what extent a letter of confirmation must state the specific purpose for which a loan or line of credit is being extended to the borrower.
Common Uses of a Bank Confirmation Letter
Bank confirmation letters are most commonly prepared for a business customer of the bank, vouching for the existence of a specified line of credit. The letters often serve to reassure sellers of a large number of goods. They may also be issued for a company that is entering into a joint venture project with another company. While the letter does not guarantee payment or provision of funds, it does provide an assurance of a high probability of the company receiving payment from the bank's customer.
A bank confirmation letter serves to assure all concerned parties in a business transaction that the bank's customer (the borrower) has, or has available, the necessary financial resources to conclude the transaction.
The most common use of a bank confirmation letter by an individual is during the purchase of a home or land. In such cases, the letter provides confirmation to a seller or realtor that the bank's customer is approved for a mortgage up to a specified amount for a proposed purchase. The letter is not a commitment to buy the property; it is merely a reassurance that the bank’s customer has access to funds to complete a purchase.