Q:

What is a bank comfort letter?

A:

According to Investopedia, a bank comfort letter outlines the ability of a person to pay their debts to a debtor. Banks use this letter to support a borrower's ability to repay a loan. Comfort letters are solvency opinions, not guarantees that the debtor will meet the obligations of the loan.

An underwriter may use a comfort letter as a means to further investigate a potential borrower prior to issuing securities. The letter follows the generally accepted accounting principals, also known as GAAP, and assures reporting of financial data otherwise missing, like a change in financial statements or unreported audits, Investopedia notes.

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