Have you been asked to provide a bank letter? If it’s the first time, you’re probably unsure how to get one or even what it should include. Today, we’re going to go over everything you need to know about bank letters, both for business and personal purposes. Keep reading to learn how to get one and avoid some common bank letter pitfalls.
What Is a Bank Letter?
A bank letter is an official document that includes information from a financial institution about a borrower. Its purpose is twofold: first, it establishes that the borrower has an existing line of credit or loan. Then it confirms that a person or a company has the financial means to borrow a certain amount of money.
What bank letters are not are generic documents about an individual’s or business’s financial resources. Instead, they are used in specific instances and for specific purposes to vouch for the person requesting the letter. We’ll take a look at some of those purposes below.
How Does a Bank Letter Work?
You may hear a bank letter referred to as a comfort letter, which makes sense, as it guarantees the financial resources of a borrower to a third party. It’s no surprise then that they are most commonly associated with significant purchases.
You might be wondering if a bank letter is the same as a letter of credit. While there are certain similarities between the two, they serve different purposes. A bank letter does not guarantee payment like a letter of credit. Rather, it shows that a person or business can pay.
Bank letters are issued with regards to a certain project or transaction, and they are non-transferable. So if you need a bank letter for a mortgage, and then you decide you want a mortgage for a different property, you’ll need to obtain a new bank letter with that property listed.
This type of correspondence must include specific information to be valid, such as the signature of a bank representative authorized to issue a bank letter.
Common Uses of Bank Letters
Bank letters may be requested in a few different situations.
Individuals
Most people familiar with bank letters have had to request one when buying property or land. Sellers commonly ask for them, as they help sellers avoid borrowers who lack the funds necessary to pay for a mortgage.
Universities may also request bank letters of individuals who are providing financial support to a student. In this case, the letter helps establish whether the sponsor has the means to fulfill the student’s needs throughout the academic year.
Businesses
Businesses are much more likely to need a bank letter than regular citizens. They typically have to produce them when a company wants to purchase goods or if they want to join a venture with another enterprise.
How to Get a Bank Letter
Requesting a bank reference letter is a routine task. For many banks, providing this service for its customers is standard. In some cases, it will require a trip to your local branch, though many banks now offer this service online, via email, or over the phone. However you acquire a bank letter, the customer service manager is the person most likely to help you.
Before attempting to get the bank letter, you should make sure you meet any loan requirements. You should also confirm what the letter must include. Sometimes, a standard letter from the bank is fine; more specific information must be listed in other cases. Confirming these details will help you avoid delays.
Bank Letter Format
While this point may seem unimportant, you should pay close attention to it. Bank letter format varies from institution to institution, and it will look different depending on who is requesting it and for what purpose. In general, a valid bank letter must include the following:
- Bank letterhead
- Business name
- Account number
- Routing number
- The date the letter was written
Account Holder Information
Bank letters will also note specific information about the account holder. Again, this information may vary, but things like the person’s full legal name, their address, government-issued ID number, how long they’ve been with the issuing bank, and their average monthly balance should all be listed.
Company Information
If you are requesting a bank letter for a company, you must include standard information about the enterprise:
- The company’s legal name
- Registered address
- Country/state of registration
- Employer identification number
Sometimes, you will be requested to list other financial information, such as a current balance or average balance.
Bank Information
A bank letter should also have information about the issuing bank, such as its name and address and the account manager’s name and contact information.
Common Bank Letter Formatting Mistakes
Certain formatting mistakes may cause your bank letter to be rejected, so make sure to check with the institution requesting one about their preferences. Small details like the font color, how the letter is addressed (either to the bank or to a specific person), and whether it’s delivered in a PDF or a sealed envelope are formatting mistakes that can all make a difference.
An Alternative: Voided Checks
Although checks have become less and less common, many businesses still have them on hand. If you have a checkbook associated with your business, a voided check can serve as an alternative to a letter from bank.
How to Use a Voided Check
Using a voided check is simple. Grab a blank check, write “VOID” on the check face, and send a picture of it to the person or institution requesting it. Keep in mind that to be accepted in place of a bank letter, your voided check must include the following information:
- Name of business
- Account number
- Routing number
Conclusion
As you can see, getting a bank letter is usually a straightforward task, though it requires close attention to detail. Confirming requirements beforehand can help save you time and aggravation, so make sure you have all your ducks in a row before requesting one.
