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Commitment letter
Also called loan commitment, letter of commitment.
A lender's written offer to fund on stated terms, subject to conditions, issued after credit approval and before closing.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
The letter sets out the amount, rate or pricing, term and amortization, collateral, guarantors, fees, an expiry date, and the conditions precedent that must be satisfied before funds are released. On bank and SBA transactions it usually follows credit committee approval and is the document a seller, landlord or franchisor will want to see.
Conditions precedent are the operative part. Typical ones include satisfactory appraisal at or above a stated value, clean environmental report, verified financials for a further period, executed leases or franchise agreements, evidence of the borrower's equity injection, satisfactory lien and background searches, and insurance in place with the lender named. Many letters add a catch-all requiring documentation and diligence results satisfactory to the lender in its sole discretion.
Some letters require a good faith or commitment deposit, applied to closing costs and often non-refundable if the borrower withdraws. That is a real cost of accepting a commitment you are not committed to.
Expiry matters in a transaction with a deadline. Letters lapse, and a re-issue can come with re-priced terms if the index or the borrower's numbers have moved.
Where this one catches people
A commitment letter is not funding, and the sole-discretion conditions mean the lender's obligation is far softer than the word commitment implies. Businesses that sign a purchase contract, give notice on premises or order equipment on the strength of one are relying on a document that expressly reserves the right to walk if diligence disappoints.
Where you will meet this term
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Commitment letter — common questions
What does commitment letter mean?
A lender's written offer to fund on stated terms, subject to conditions, issued after credit approval and before closing.
Where does commitment letter catch people out?
A commitment letter is not funding, and the sole-discretion conditions mean the lender's obligation is far softer than the word commitment implies. Businesses that sign a purchase contract, give notice on premises or order equipment on the strength of one are relying on a document that expressly reserves the right to walk if diligence disappoints.
Is commitment letter the same as an interest rate?
Commitment letter is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does commitment letter apply to?
Term Loan, Business Line of Credit, SBA Loan, Equipment Financing, Asset-Based Lending.
Is there a worked example of commitment letter?
Not on this entry. Where a term is arithmetic, the arithmetic is shown; this one is not primarily a calculation.
What else should I read alongside commitment letter?
Achievement of milestones, Approval, Closing costs, Conditions precedent, Credit committee.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.