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CS Professional · Strategic Management and Corporate Finance · Raising of Funds - Non Fund Based

A promoter company gives a supplier a letter stating that it is aware of its subsidiary's purchase and 'will ensure' the subsidiary has adequate funds, without undertaking to pay on default. Compared with a bank guarantee, this letter of comfort is generally:

A letter of comfort is a softer assurance of support, and its enforceability depends on its wording; it is generally weaker than a bank guarantee, which is a firm promise to pay on default. It is neither a funded loan nor an RBI certificate.

  1. AA fully enforceable payment undertaking identical to a guarantee
  2. BA softer assurance of support whose legal enforceability depends on its wording and is generally weaker than a guaranteeCorrect
  3. CA fund-based facility that must be disbursed at once
  4. DA certificate issued by the RBI

Explanation

A letter of comfort expresses moral support or intention and usually does not create a direct payment obligation unless the wording amounts to an undertaking. A guarantee is a firm contractual promise to pay on default. It is not a fund-based loan and is not issued by RBI.

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