What is a 'Bank Confirmation Letter - BCL'

A bank confirmation letter (BCL) is a letter from a bank or another 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 – whether an individual, company or organization – is eligible to borrow a specified amount of funds for a specified purpose.

BREAKING DOWN 'Bank Confirmation Letter - BCL'

The purpose of a bank confirmation letter, sometimes referred to as a comfort letter, 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 is not a guarantee of payment, only an assurance of the borrower's financial resources to make payment.

A bank confirmation letter serves to assure all concerned parties to a given business deal or transaction that the bank's customer, the borrower, has, or has available, the necessary financial resources to conclude a specified transaction. Such letters typically require the signature of representatives of the bank or the financial institution who are specifically authorized to issue such correspondence. Since a letter of confirmation is issued in regard to a specific transaction or project, it is not transferable to a different transaction or project. If the bank's customer decides to enter into a different deal or purchase, such as a prospective homebuyer deciding to purchase a different home than the one specified in a bank confirmation letter, the customer is usually required to obtain a new letter of confirmation.

Governmental 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. Confirmation letters often serve to reassure sellers of a large quantity of goods. They may also be issued for a company that is entering into a joint venture project with another company. While the bank confirmation letter does not absolutely guarantee payment or provision of funds, it does provide an assurance of a high probability of receiving payment.

The most common use of a bank confirmation letter by an individual is in the purchase of a home or land. In such a case, 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; it is merely a reassurance that the bank’s customer has access to funds to complete a purchase.

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