What is a 'Confirmed Letter of Credit'

A confirmed letter of credit is a letter of credit with a second guarantee obtained by a borrower in addition to the first letter of credit. A confirmed letter of credit is typically used when the issuing bank of the first letter of credit may have questionable creditworthiness and the seller seeks to get a second guarantee to assure payment. If the first letter of credit is not backed by a second guarantee then it may be considered unconfirmed.

BREAKING DOWN 'Confirmed Letter of Credit'

A confirmed letter of credit requires the backing of more than one bank by a buyer of goods in a domestic or international transaction. A confirmed letter of credit may be required by a buyer in a transaction if the seller is not satisfied with the creditworthiness of the first letter of credit. A confirmed letter of credit adds to the credibility of the buyer and helps to decrease the risk of payment default for the seller.

First Letter of Credit

A letter of credit is commonly needed in business transactions requiring substantial payment for goods or services. Instead of requesting an advance payment, the seller may require that the buyer obtain a letter of credit for the balance of the payment to be owed at the time of full delivery. A buyer must work with a bank to obtain the first letter of credit. This requires a full credit application similar to the credit application for a loan. If the seller is approved for the letter of credit the bank documents that they are willing to pay the seller the stated amount if the buyer defaults at the time of payment. The terms of the letter of credit will typically structure the payment as a loan for the buyer.

If the buyer is unable to make the payment to the seller at the time when the funds are due then the bank will issue the payment as a loan to the buyer. Upon receiving the letter of credit, the buyer also agrees to the bank’s loan terms. Terms of the loan if required will included a stated interest rate and payment schedule as well as other disclosures regarding repayment.

If the seller is satisfied with the first letter of credit they may accept it as an unconfirmed letter of credit. Unconfirmed letters of credit require the support of only one lending bank.

Obtaining a Second Letter of Credit

Obtaining the second letter of credit confirms the first letter of credit and qualifies it as a confirmed letter of credit. The process for obtaining a second letter of credit is the same as the first letter of credit. The buyer will have to find a second bank to back their purchase in the case of defaulted payment. The buyer will need to go through the same letter of credit process again to be approved for a second letter of credit. The structuring of the funds for the second letter of credit will typically take into consideration the terms of the first letter of credit as well. In some cases, the seller may only require that the second letter of credit represent a percentage of the total due since it is in addition to the credit offered by the first bank.


  1. Bank Confirmation Letter - BCL

    A bank confirmation letter is a letter confirming that a line ...
  2. Letter Of Guarantee

    A letter of guarantee is typically issued by a bank, letting ...
  3. Shareholder Letter

    A shareholder letter is a letter written by a firm's top executives ...
  4. Cover Letter

    A cover letter is submitted with a job application and resume ...
  5. Letter Of Comfort

    A letter of comfort is a written document that provides a level ...
  6. Reservation Of Rights Letter

    A reservation of rights letter is provided to the insured party ...
Related Articles
  1. Investing

    7 Tips for Writing a Homebuyer’s Letter to a Seller

    To win a real estate bidding war, use these seven tips for writing a homebuyer’s letter to a seller that’s engaging and personal.
  2. Personal Finance

    6 Ways To Build Credit Without A Credit Card

    It's definitely possible – if a bit more complicated – to build a credit history without traditional credit cards. Just follow these steps.
  3. Personal Finance

    Build Your Credit Score

    Here are four good ways to build your credit score when you're starting from scratch. Do it right and you'll end up with excellent credit.
  4. Personal Finance

    Is Your Credit Score at 850? It Can Be!

    Use these tips to increase your credit score and your ability to get low interest rates on loans.
  5. Personal Finance

    How Your Credit Score Compares to the Average American's

    While only a small percentage of Americans have terrible credit scores, a whopping 30% have poor or bad credit, according to the Consumer Financial Protection Bureau.
  6. Investing

    Revolving Credit vs. Line of Credit

    Revolving credit and a line of credit are arrangements made between a lending institution and a business or individual.
  7. Personal Finance

    How To Dispute Errors On Your Credit Report

    It just takes some time and effort to rebound from a nasty case of "credit rejection shock."
  8. Managing Wealth

    5 Common Misconceptions About Your Credit Report

    Your credit report is one of the most important factors in determining your ability to get loans and new credit and has a major influence on your rates.
  1. What are the different types of letters of credit?

    Learn more about the different types of letters of credit that are used to facilitate exchanges between parties that might ... Read Answer >>
  2. What do the letters / symbols on credit ratings mean?

    Learn about the numbers, letters and symbols used to express credit ratings and credit scores. Understand what these symbols ... Read Answer >>
  3. How legally binding is a letter of intent?

    Find out when a letter of intent (LOI) is binding and non-binding. Understand the role of drafting language, and when an ... Read Answer >>
  4. What's the difference between a credit rating agency and a credit bureau?

    Learn how to differentiate between credit rating agencies and credit bureaus, two industries that distribute valuable risk ... Read Answer >>
Trading Center