BCL – Bank Comfort Letter
The BCL, or Bank Comfort Letter, is a document usually issued by investment banks in which the bank says the client has a good credit history, sufficient to support large transactions, or the bank says it is willing to grant loans to the client, enough to cover the value of a particular transaction.
That is, it is a vote of confidence issued by the bank, with the purpose of helping to generate trust (comfort) between the parties.
BCL is especially useful when the parties have never seen each other and when the transaction needs speed.
For example: a medium-sized trading company, located in Pakistan, wants to buy chicken from a Brazilian slaughterhouse that is represented by a broker.
If the transaction is not in a hurry, the broker will be able to access the history of the likely buyer with international credit agencies (a type of Serasa). You can also calmly check all the company documentation, etc.
However, if the deal is urgent, the broker can request a BCL from a reputable bank. If the letter arrives, the probability that the buyer will be serious will be great. In this case, it will be justifiable to invest time in doing business.
If the buyer is unable to supply the BCL, this may indicate that it is not a final buyer, but an intermediary probing the market. Or it may indicate that the buyer is unable to provide credit quickly.
Although, in today’s market, BCL can sometimes be considered a refinement, an excess. It will depend on the market profile and the situation.
Note that the BCL is just a compliment from the bank and does NOT guarantee payment. Payment will only be guaranteed after a bank guarantee (BG) or letter of credit (L / C) has been issued.
However, the issuance of guarantees can only occur after the contract is signed, which logically only happens after the negotiation is concluded.
Thus, the BCL serves to encourage the engagement of the parties, while they still do not know each other well.
When the parties already know each other, the BCL becomes unnecessary and the focus becomes the reissue of guarantees.
Leave a Reply