In one sentence
A backup financing commitment a borrower can draw on if primary financing is unavailable, providing assurance without an expectation of funding.
The longer version
A standby commitment is a fallback: the lender agrees to fund if needed, but both parties expect the borrower to secure other financing first. It supports a project's feasibility or satisfies another lender's requirement.
Standbys are priced for the option they provide and documented like other commitments, with conditions and an expiration.
Common questions
- What is a standby commitment?
- A backup financing commitment a borrower can draw on if primary financing is unavailable, providing assurance without the expectation of funding.
- Why would a borrower obtain a standby commitment?
- To satisfy a construction lender that a takeout exists, or to secure a fallback if permanent financing falls through.
- Is a standby commitment expected to fund?
- Usually not. Its terms are often unattractive by design. The borrower pays a fee for the assurance and refinances elsewhere.
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