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. Letter Of Credit

    A letter of credit is a letter from a bank guaranteeing that ...
  2. Bank Confirmation Letter - BCL

    A bank confirmation letter is a letter confirming that a line ...
  3. Assignment Of Proceeds

    Assignment of proceeds occurs when a document transfers all or ...
  4. Reservation Of Rights Letter

    A reservation of rights letter is provided to the insured party ...
  5. Demand Letter

    A demand letter is a document that gives formal notice that you ...
  6. Engagement Letter

    An engagement letter is an agreement defining the legal relationship ...
Related Articles
  1. Investing

    Financial analyst cover letters that get you hired

    Crafting a strong cover letter for an analyst job with these techniques can increase your chances of standing out from the crowd and landing an interview.
  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. Investing

    Are Hedge Fund Letters More Valuable Than 13Fs?

    13F filings can be a useful way to track hedge fund investment strategies, but sometimes it pays to go directly to the fund leaders themselves.
  4. Small Business

    How To Increase Your Appeal To Prospective Lenders

    Making a business eligible for loans/credit cards at the best possible rates requires crafting an excellent credit profile through the smart use of credit.
  5. Personal Finance

    Take the Right Steps to Build Excellent Credit

    There are several things you can do to protect and improve your credit score.
  6. 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.
  7. Financial Advisor

    Your Advisor and Myths of International Investing

    Wall Street touts diversification and improving portfolios via investing in international equities. But do we know the whole story they're selling?
  8. Small Business

    Small Business Loan Vs Line of Credit: How They Differ

    Understand the differences between a small business loan and a line of credit, and learn some of the most appropriate uses for each form of financing.
  9. Personal Finance

    How to Establish a Credit History

    Can't get a credit card without a credit history, and can't get a history without a card? Break the Catch-22 with these tips on how to build good credit.
  1. Revolving Credit vs Line of Credit

    Understand how to differentiate between a line of credit and a revolving credit account, their uses, and how both differ ... Read Answer >>
  2. What is the difference between a letter of intent and a memorandum of understanding?

    Understand what a letter of intent and a memorandum of understanding are, and learn the primary difference between the two ... Read Answer >>
Trading Center