Have you been asked to provide a bank letter and aren't sure what it is? Check out this guide to get all the details you need.
There are some instances where you might be asked by a company to provide a bank letter. There are many circumstances where this is possible, and you need to be prepared to ask the bank for the letter and explain who it needs to be addressed to.
A bank letter is written by your bank to give information about you, such as if you have a loan and how much money you are able to borrow. It will also state if your account is current and not overdue.
You might be wondering when you will need to provide a bank letter and what it should include. We will discuss all the details thoroughly and will also discuss how you can ask the bank for a letter.
How Does A Bank Letter Work?
A bank letter might also be called a comfort letter. This is because it guarantees to a third party that you have the financial funds to enter into a financial agreement. It guarantees your financial resources so that a third party can trust doing business with you or allow them to feel comfortable in giving you a loan.
This might sound similar to a letter of credit, but they are different. A letter of credit guarantees that you will pay, while a bank letter only states that you have the ability to pay a certain amount.
Bank letters are usually only made for one transaction so you will need a different bank letter for each transaction you are doing. For example, if you get a bank letter for a mortgage for a certain property and then decide to get a mortgage for another property, you will need two different bank letters with each of the separate properties listed.
All bank letters also must be signed, dated, and stamped to be valid. They will not be considered official without the signature of the bank representative. Their contact information should also be listed in case the other party wants to contact them.
Bank letters are meant to show a person or business that you can borrow up to a certain amount and pay it back easily. It shows how much of a loan or line of credit you are eligible for.
It's not the same as a proof of funds letter. A proof of funds letter shows exactly how much money you have in the account. A bank letter only shows that you have been approved for up to a certain amount and that you are able to pay it back.
A bank letter guarantees that people can feel safe and secure going into business with you because you are a low-risk borrower.
What Is A Bank Certification Letter?
A bank certification letter is the same as a bank letter. You might also hear it called a bank comfort letter. These sayings are often used interchangeably because they all mean the same thing.
They will have the same components. If you ask your bank for any of the above, they will know what you're talking about and be able to make it for you.
Bank verification letters are also the same. There are different names for bank letters but they all show that you have an account and that you are able to borrow and pay up to a certain amount.
Can A Bank Deny A Bank Letter?
This is generally no reason for a bank to deny a letter unless you don't have an account or your accounts are overdue. Usually, you will know if your accounts are overdue, and you shouldn't ask for a bank letter in this case. You might also not want to ask for a bank letter if your average monthly balance is low.
You need to have a line of credit or loan with a bank or be approved for one to get a bank letter, so you should be in good standing with the bank.
How Do I Get A Bank Letter?
Your bank will not be surprised when you contact them asking for a bank letter. They are standard practice for them, and they can usually make them fairly quickly. Some banks allow you to request them online or over the phone, while other banks will want to see you in person. You might need to visit your local branch to ask for a bank letter.
Before asking for one, you want to make sure you meet loan requirements and that all your accounts are current. You should also ask what's included in the letter. Most of the time, the third party just wants to see a standard letter. If they are asking for something very specific, you should contact the bank and make sure they include specifics.
Failing to do so might delay the task at hand with the third party.
What Are Bank Letters Used For?
Even though you know what a bank letter is now, you might be wondering when you might need one. There are several different instances where someone might ask you for a bank letter, and it's always good to be prepared.
If you are getting one as an individual, it's most likely for property or a mortgage. Individual bank letters are not for companies or businesses. It's common for a seller to ask for one because they want to make sure the person will be able to pay their monthly mortgage. This ensures they are not going with a risky borrower.
Another common time someone might ask you for a bank letter as an individual is when you are providing support to a student who is in college. The university will want to see that you have enough funds to pay the tuition and fees.
You are more likely to need to provide a bank letter as part of a business than you are as an individual. Bank letters are common for businesses when they are looking to join another business or when they want to purchase a large amount of product or goods.
What To Include In A Bank Letter
Always make sure your bank letter has all the necessary information. Here is what is needed in a bank letter unless other things are asked for instead.
Account Holder Information
The bank will need to include some personal information about you so that the third party knows who the letter is about. This will include things like your full name, your address, your government-issued ID number, how long you have had an account with the bank, and your average monthly balance.
This section is included if the bank letter is for your business or company. It will need to include your company's full name, the address for the company, the employer identification number, and the county and state where the business is registered.
You might also need to list information about your average monthly balance.
There also needs to be some information about the bank that is writing the letter. It needs to include the name and address of the bank as well the contact information of the branch manager and the person who is signing the letter.
Other Important Information
Your bank letter also needs to include your routing number, account number, and the day your letter was written. It should also be on paper with an official bank letterhead to show that the letter is authentic. It also needs to have the full name of your business.
Before accepting a bank letter, make sure it has all the above information. Most banks will know what to include, and you shouldn't have any issues. If you notice a problem, let the bank know right away.
Common Mistakes To Avoid
There are some common formatting mistakes to avoid because they could cause your bank letter to be rejected. Then you will have to start the entire process over again, which can delay business transactions.
Make sure you ask the third party how they want the bank letter delivered. Some are okay with an electronic PDF, while others want it delivered physically in a sealed envelope. Some people also want the letter addressed to a specific person, while others allow you to address the company or bank as a whole.
As you can see, bank letters are a straightforward way to let a third party or company know that you are capable of paying a loan. Companies want to see that they are working with people that are low risk that can always make their payments on time.
While bank letters are standard procedures for most banks, you will want to make sure they include everything so that it doesn't cause you delays or issues. Always check with the third party, so you know what they want to be included.
Shawn Manaher is a former financial advisor, has founded 5 online businesses, and is a coach, speaker, podcast host, and author. He's been featured on Forbes, The Consults Corner on TAE Radio, The Writing Biz, What's Your Story, and more.