In one sentence
A lender's binding agreement to make a loan on stated terms once the listed conditions are satisfied.
The longer version
Where a term sheet proposes, a commitment binds. The commitment letter fixes the terms and lists conditions precedent to funding, and issuing it typically means the loan has cleared credit approval.
The conditions in the commitment are the closing checklist in embryo. Reading them against the actual request list at kickoff prevents the late discovery that a required item was never asked for.
Common questions
- What is a loan commitment?
- A lender's binding agreement to make a loan on stated terms once listed conditions are satisfied. It usually follows credit approval and precedes the loan documents.
- Can a lender back out of a loan commitment?
- Only on the terms the commitment allows, typically if conditions are not met, a material adverse change occurs, or the commitment expires before closing.
- What conditions are in a loan commitment?
- Satisfactory title, survey and third-party reports, organizational documents, insurance, no material adverse change, and deal-specific requirements such as leasing or equity contributions.
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